Mr. DALEY. The distinction here is that the Federal National Mortgage Association would purchase and service the loans.

Mr. RAINS. Yes, sir.

Mr. DALEY. Under H. R. 9136, the proposal was that the Federal National Mortgage Association, if it found a loan insoluble or in default, would replace that loan with a good loan in the fund, with the Secretary of the Treasury.

This bill proposes that in the event of a default that the Administrator of Veterans' Affairs shall pay off the loan.

Mr. RAINS. The VA home-loan program expires in 1957.

Mr. DALEY. Yes, sir; July 25, for World War II veterans.

Mr. RAINS. I notice some statement in the papers to the effect that no VA loans could be processed after, I believe, December of this year.

Mr. DALEY. I will ask Mr. Stone to answer that.

Mr. STONE. Mr. Sweeney will explain.

Mr. SWEENEY. Mr. Rains, I made that statement before a meeting of the mortgage bankers.

First of all, I don't think that the program participants realize what the effect of the termination means. Our general counsel has ruled that in the case of World War II veterans all loans have got to be made by July 25, 1957.

Unlike credit controls, we could not, under existing provisions of the law, carry over loan commitments or certificate of reasonable value issued prior to the terminal date. We had no administrative discretion to exempt and carry over beyond that date.

Since all loans to World War II veterans have to be made, it would be incumbent upon the Administrator, if the Congress took no definite action in this session to extend the World War II program to make an announcement to the effect that in connection with the making of forward commitments by builders and lenders the parties are placed on notice that it would be administratively impossible for the VA to receive a request for reasonable value, and have them processed in our offices, have the lenders make the loan, or process them to us for commitment and then make the loans, and have all that done unless we had a cutoff date. In other words, to give the industry notice of what the situation is from a practical standpoint.

So it was a matter of announcing what the administrative difficulties would be.

So we made that preliminary announcement, because I don't think that most program participants understood the problems involved in the present situation.

Mr. RAINS. In other words, Mr. Sweeney, if the Congress intends to extend this program, the action should be taken in this session of Congress?

Mr. SWEENEY. Yes, sir; I think in fairness to all the building industry, the financial fraternity, and others concerned, that they ought to know the position of the Government, whether it is going to be terminated, or the Congress should announce if it is going to be continued.

Mr. RAINS. Mr. Sweeney, I have introduced a bill which you possibly have seen which I hope this committee will consider putting into the omnibus housing bill. Its provisions would extend the VĂ

home loan program on a formula basis of, I believe, 1 month for each month of service.

Do you favor that type of an extension, where it would not have an exact cutoff date for all veterans at one time?

Mr. SWEENEY. While the Veterans' Administration has no recommendation to make on the basic question whether the program should be extended at all I understand you would like my comments on the form of an extension should the Congress determine that the program should be extended. As far as the manner of termination is concerned, maybe there should be some formula for writing off the veterans, dependent on the years of service, but, if I may so state, from an administrative standpoint, your formula may create some administrative difficulties.

I would think that maybe if a man had 1 year or less of service, we would give him one year; if he had 2 years, 2 years, rather than getting down to the months.

I think probably that would be in accord with the objectives of the bill and would be more simple from an administrative standpoint.

Mr. RAINS. Of course, in the bill which I introduced there is a complete and final cutoff date, but in addition there is a cutoff date based upon the number of months service each veteran had. It was my feeling that it would be better to extend it on this basis, instead of setting a certain cutoff date for all.

Do you agree with that?

Mr. SWEENEY. I agree with you.

Mr. DALEY. You will recall, Mr. Rains, that there was an amendment to the bill, H. R. 9260, 84th Congress, that passed the House of Representatives which would permit a 1-year extension in the case of a veteran whose loan was applied for and was started prior to July 25, 1957.

Mr. RAINS. Yes, sir; that passed a week or so ago.

Mr. DALEY. Yes, sir.

Mr. RAINS. I have one other question, Mr. Daly.

I was thinking over that answer you gave me about those GI mortgages. It worried me a little.

You wouldn't want the mortgage bankers whom we are asking to buy those mortgages to hear you say that you didn't think it was a safe investment for the trust fund, would you?

Mr. DALEY. Mr. Rains, I am speaking for the Adminstrator of Veterans' Affairs. The statement has been cleared with him and cleared with the Bureau of the Budget, and it is our understanding that the Bureau of the Budget is speaking for the administration and is opposed to the utilization of the National Service Life Insurance trust fund for this purpose.

Mr. RAINS. Well, you regard, of couse, a GI-guaranteed loan as a good investment, don't you?

Mr. DALEY. We have always felt so, Mr. Rains.

Mr. RAINS. What is the percentage of foreclosures?
Mr. DALEY. I will ask Mr. Stone to answer that.

Mr. SWEENEY. Six-tenths of 1 percent.

Mr. RAINS. That is almost as good a record for GI's as has been made in battle, and I think it is a wonderful, a wonderful record. Thank you, Mr. Daly.

Mr. BROWN. Mr. Wolcott?

Mr. WOLCOTT. No questions.
Mr. BROWN. Mrs. Sullivan?

Mrs. SULLIVAN. No questions at this time.

Mr. BROWN. Mrs. Griffiths?

Mrs. GRIFFITHS. Did I understand Mr. Rains to say that this has some effect upon balancing the budget? Are these insurance premiums carried as an asset in the budget?

Mr. DALEY. They are part of the trust fund. I don't think they are related to the overall budget, Mrs. Griffiths.

Mrs. GRIFFITHS. That is all, thank you.

Mr. BROWN. Mr. Betts?

Mr. BETTS. Do the veterans organizations take a position on this? Mr. DALEY. They have generally viewed favorably, proposals to provide additional credit sources for the program, Mr. Betts. I am not informed as to the organization's position on this bill. In the hearings before the Veterans Affairs Committee on H. R. 9136, support was voiced by VFW and AMVETS. The American Legion did not approve the use of the USLI fund.

Mr. BETTS. Are they represented here this morning?

Mr. RAINS. They are scheduled for later on.

Mr. BETTS. That is all.

Mr. BROWN. Mr. Vanik?

Mr. VANIK. No questions.
Mr. BROWN. Mr. Mumma?

Mr. MUMMA. Mr. Daley, are all claims, death claims of veterans, paid out of the insurance trust fund?

Mr. DALEY. Those that are not traceable to the extra hazard of service. If a veteran's death is due to a service incurred disability, as determined by the Veterans' Administration, the payment of the claim is charged to appropriations rather than to the National Service Life Insurance trust fund, proper. That is, appropriated funds are transferred to the fund. That is specifically provided in the National Life Insurance Act, in regard to the "extra-hazard" cases.

Mr. MUMMA. I am not so old in the Congress, but when I was somewhat younger, I thought the statement was made on the floor that there had never been a death claim paid out of the National Service Life Insurance fund.

Was that correct? Or am I dreaming? That there had never been a payment made out of the fund, a death claim?

Mr. DALEY. The situation would have to have been cases where the extra hazard of service contributed to the death. The administrative costs of the program are borne by the Government.

Mr. MUMMA. Do you mean by extra hazard, a battlefield casualty? Mr. DALEY. Not necessarily. It might have been a death or disability which was caused by, or traceable to, the performance of duty as held by the Veterans' Administration, and at his death, in that event, the fund proper would not be chargeable with the proceeds of the claim.

Mr. MUMMA. If he had just died from general causes.

Mr. DALEY. If death was due to civilian situations, it would be a general insurance risk.

Mr. MUMMA. If he died of pneumonia or something like that, it would be paid out of the fund?

Mr. DALEY. Yes, sir; if not traceable to service.

Mr. MUMMA. It seemed funny to me at that time that ordinary deaths wouldn't be paid out of the fund, but the statement was made that they had never been. I just wondered where they get the dividends, if they paid all those claims.

Mr. DALEY. There were some situations under the prior laws whereby individuals who died or became permanently totally disabled within a certain period were covered by automatic insurance, so-called. Those would not be paid from the Government insurance funds. Those would be paid by the Government as a matter of benefit.

Mr. MUMMA. Those premiums would be quite high in comparison to the money drawn?

Mr. DALEY. No, those automatic cases, there would be no premiums levied against the individuals.

Mr. MUMMA. This bill provides for

Mr. DALEY. I wonder, Mr. Mumma, if you might not be considering the Servicemen's Indemnity Act, whereby the amount of indemnity is paid in the event of death, of persons in service. That was under Public Law 23, 82d Congress.

Mr. MUMMA. I really don't know. I just took that statement. I think they were discussing the probability of letting some insurance company handle different insurance programs of the Government.

You say six-tenths of 1 percent of the mortgages have been foreclosed or are in trouble. I thought I remembered along that line that it was very low, but that the actual amount was some 40,000. Would that be correct?

Mr. STONE. 28,000, sir, approximately.

Mr. MUMMA. It is a good record, anyhow. Thank you.

Mr. BROWN. Mr. McVey?
Mr. MCVEY. No questions.
Mr. BROWN. Mr. Hiestand?

Mr. HIESTAND. No questions.
Mr. BROWN. Mr. Bass?

Mr. BASS. No questions.

Mr. BROWN. Gentlemen, we are very glad to have your testimony. Mr. DALEY. Thank you, Mr. Chairman.

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

The CLERK. John H. Arrington, Family Housing Division, Office of the Assistant Secretary of Defense for Properties and Installations. Mr. BROWN. Come around, Mr. Arrington.

STATEMENT OF JOHN H. ARRINGTON, CHIEF, FAMILY HOUSING DIVISION, OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE FOR PROPERTIES AND INSTALLATIONS; ACCOMPANIED BY ANDREW MAYER, OFFICE OF GENERAL COUNSEL

Mr. ARRINGTON. Mr. Chairman, I have with me Mr. Andrew Mayer of our office of General Counsel.

I have a prepared statement, which I would like to read, if that is agreeable to the committee.

I appreciate the opportunity to appear before you today on behalf of the Department of Defense, in order to furnish current information on our military housing programs, and to offer our views with regard to proposed legislation now pending before this committee.

First of all, I'd like to say a few words about the basic reason why we need family housing-the necessity to retain essential people in uniform on a voluntary basis.

The personnel problem of the Armed Forces are becoming increasingly critical, because of the failure of trained career people to reenlist. Aside from the cost of training replacements, it is absolutely impossible to operate complex modern military equipment with inexperienced personnel. Consequently, a low reenlistment level jeopardizes the basic effectiveness of the national defense effort.

In this connection I should like to quote a relevant portion of the statement given yesterday by Secretary Wilson before a subcommittee of the Senate Committee on Appropriations:

The personnel program of the Department of Defense does not involve either large increases or decreases, since we have now reached a substantially stable level of strength. Our problem today is to achieve stability of skilled personnel within these numbers.

We must increase the ratio of career personnel to total personnel. We must further reduce the personnel turnover rate and provide the necessary incentives for larger numbers of highly qualified officers and enlisted men to accept military service as a career. When we attain a “hard core" of career personnel, in sufficient numbers to constitute a reasonable percentage of the total, we will have stability in its full and true sense.

There are now pending before the Congress several important personnel measures designed to do just that, and I hope that you will give them your full support. I recommend to your particular consideration the provision for adequate medical care for dependents, the measures which we are recommending for the improvement of housing for military personnel, the important adjustments necessary in our survivor benefit legislation, and the augmentation of the Regular officer structure of the services. * * *

For specific comments on the importance of the problem with which we are trying to deal, some brief excerpts from a statement made by Secretary of the Navy Thomas last year are of interest:

Fifty-eight percent of the men in the Navy today have enlistment contracts which expire in the next 2 years. This means that the Navy will lose about

350,000 men during the next 2 fiscal years.

These personnel can be divided roughly into two groups: The so-called career people, who are on their second or subsequent enlistment; and the noncareer people, serving on their first enlistment.

Among our career personnel, only 58 percent are signing up for additional service. This 58 percent today compares with 90 percent only 1 year ago. For the noncareer people, less than 6 percent are signing up. ***

Not all of these losses are the apprentices and the unskilled. Many are highly trained technicians, specialists in electronics repair, aviation mechanics, submarines, and atomic weapons, as well as the many other technical trades of the Navy. Many are our key people-our supervisors, our petty officers. These are the types that industry attracts in particular.

Unless we can reverse this trend, make a career of military service attractive and thereby keep our hard core of trained people, the Navy will inevitably become a second-rate organization. ***

Considering the cost in men and in money and in military effectiveness, it is apparent that nonreenlistment is a major defense problem. It affects not only the Navy, but the Army and Air Force as well, and one of the 2 or 3 principle reasons for it is lack of adequate family housing.