Mr. MITCHELL. Your approach, really, to the whole housing program is the hand-me-down approach, the building of high-priced houses at the top, eventually making a housing unit available at the bottom?

Mr. RECKMAN. We say that every unit, every unit that is constructed, provides a means to relieve the situation.

Mr. MITCHELL. That is a truism. That is not in relation to the housing need in total.

Mr. RECKMAN. That is right. Now, then, when we ask what is the need, frequently we come to the individual himself. We have learned to regard the telephone as a necessity, if I may take that as an extreme example, but some of us remember when we had no telephones. I do not say we want to go back to that day, do not misunderstand me, but all I am attempting to say is there is a difference in the degree of need as you see it, and as I see it, and our everyday walk of life. We cannot regulate habits of people. God help us if we attempt to do that, and I am sure it is not the purpose of Congress.

Mr. MITCHELL. But certainly we can regulate the habits of people to a considerable extent by giving them a good housing environment. Mr. RECKMAN. If we want to give the people a good housing environment, then let us have a healthy atmosphere in which houses will be built and can be built, which will give what our people most desire.

Mr. MITCHELL. I think we are in agreement on that as a statement, but not as how the people are going to get the credit to build the houses. Thank you, Mr. Chairman.

Mr. BROWN. Thank you very much Mr. Reckman. You may stand aside.

(The following statement was submitted for inclusion in the record:) STATEMENT OF ROBERT F. BONAMARTE, COCHAIRMAN OF THE NATIONAL SERVICE COMMITTEE OF THE FLEET RESERVE ASSOCIATION

Mr. Chairman and members, my name is Robert F. Bonamarte, cochairman of the national service committee of the Fleet Reserve Association and past national president of the Fleet Reserve Association.

My association is composed of membership of the Regular Navy and Marine Corps, Fleet Naval Reserves, Fleet Marine Corps Reserves, and retired enlisted personnel of the Navy and Marine Corps. The Fleet Reserve Association, Mr. Chairman, recommends favorable action be taken on H. R. 1324 and its companion bill, S. 616, but since H. R. 5631 contains a section amending the Servicemen's Readjustment Act of 1944, we recommend that the provisions of S. 616 and H. R. 1324 be amended into H. R. 5631.

These amendments, if enacted into law, will expedite the borrowing of funds for the acquisition of homes from established lending institutions and thus abolish immediately the necessity of second mortgages on homes under section 505 (a), title III of the Servicemen's Readjustment Act of 1944, as amended, which, at the present time, appears to be handicapping veterans in meeting their payments incident to their low income.

The provisions of H. R. 1324 and S. 616 will greatly assist the veteran in obtaining one mortgage at a lower rate of interest and give him a longer period in which to pay off the mortgage.

I would like to interject at this point that there is no one more qualified to express thoughts with reference to the first and second mortgages on purchasing a home than I am. I happened to be in that particular category one time, trying to get a full loan, which I could not get from the VA, and I had to go out and get a secondary loan at 6 percent, thereby causing me to pay twice as much as the provisions of H. R. 1324 would have required, if it had been the law, thus fulfilling the moral obligation of the Federal Government to the veteran and giving him an opportunity to provide the one thing, each American desires for his family-a home within his income.

Some veterans' organizations may oppose certain provisions of H. R. 1324 and S. 616 but, in my estimation, their opinions do not reflect the majority opinion of the veterans who are attempting to purchase homes within their income.

H. R. 5631 has a section which calls for direct loans to veterans in localities where the veteran cannot obtain a 100 percent GI loan. It also provides for that loan to be made at 4-percent interest while the present law (Public Law 901, 80th Cong.) gives the Administrator of Veterans' Affairs the right to increase the rate to 42 percent. One provision of H. R. 1324 and S. 616 which we are suggesting be amended into H. R. 5631 clarifies the manner in which the Administrator shall determine what the going rate of interest should be. Therefore I suggest that H. R. 5631 be further amended by striking out in line 15 of section 512 (b) on page 78 of the bill the words "of 4 per centum per annum" and substituting in lieu thereof the following "the interest rate set by the Administrator of Veterans' Affairs," and further amending the same section by striking out of line 21 "of 4 per centum per annum" and substituting therefor "established by the Administrator of Veterans' Affairs."

We also believe that if the direct loan provisions of H. R. 5631 is to work to the benefit of the veteran in those areas where few or no GI loans have been made the appropriation of $300,000,000 is entirely too low, and if this section remains in this bill, the appropriation should be greatly increased.

I thank you.

Mr. BROWN. That concludes the testimony today, and we will adjourn to reconvene tomorrow at 10 o'clock.

(Whereupon, at 1:20 p. m., the committee was adjourned to reconvene at 10 a. m., Tuesday, August 2, 1949.)

HOUSING AMENDMENTS OF 1949

TUESDAY, AUGUST 2, 1949

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met, pursuant to adjournment, at 10:30 a. m., Hon. Brent Spence, chairman, presiding.

Present: Messrs. Spence, Brown, Monroney, Rains, Buchanan, Multer, Addonizio, Mitchell, Kunkel, Talle, McMillen, Kilburn, and Cole.

The CHAIRMAN. The committee will be in order.

We will continue our hearings on H. R. 5631.

Mr. Ferguson, representing the United States Savings and Loan League is the first witness. Mr. Ferguson.

STATEMENT OF ABNER H. FERGUSON, WASHINGTON COUNSEL, UNITED STATES SAVINGS AND LOAN LEAGUE

Mr. FERGUSON. Mr. Chairman and gentlemen of the committee; I appreciate this opportunity that you have given me to appear before you to lend what assistance I may in connection with the legislation now before you.

The United States Savings and Loan League is an association of more than 3,700 savings and loan associations whose activities are almost entirely concerned with some financing.

As some of the members of this committee know, I have long been familiar with the operations of the Federal Housing AdministrationI was its general counsel for 5 years and its Administrator for 5 years. I trust that what I may say will not be taken as gratuitous criticism. What I shall say is said with the sole desire to be constructive and helpful to this committee in working out a sound workable solution of the questions involved here and which we all must admit are of the utmost importance and much confused.

Section 104 of the bill revamps the insurance activities of the Federal Housing Administration in connection with loans on individual homes. It does not change the law in respect to the insurance of loans on old houses but it does completely revamp the sections dealing with the insurance of new houses. It puts the insurance of these loans which go up to $6,650 on a 95 percent basis. We do not believe that it is either desirable or necessary to go this far; we do not believe it is possible to appraise properties with such exactness as to make these loans practical; we do not think that a 5-percent equity is enough to tie the owner into the property and to prevent him from abandoning it almost at will. He is substantially a renter and we believe he

should have at least 10 percent of his own money invested in the property as is provided in the present law.

Section 109 of the bill amends the section dealing with the power of the Administrator to issue regulations by authorizing and directing him to issue rules or regulations permitting what is in effect a 3-year moratorium in the event the mortgagor may be unable by reason of unemployment or misfortune to meet his monthly payments. I doubt very seriously if lending institutions generally will make or buy mortgates which have in them a provision requiring the granting of a moratorium practically at the will of the mortgagor. I think the question of moratoria is one that should be left to the decision of the various States and I do not think that an agency of the Federal Government should be authorized to set them up at its discretion. The moratorium here provided for permits the mortgagor to remain in possession of the property without paying taxes, or insurance, or interest.

Section 111 of the bill adds a new section known as section 213. This section provides for the insurance of loans to nonprofit cooperatives and nonprofit mutual housing corporations. This section provides for two kinds of insurance. First, the insurance of rental housing projects which is covered now by section 207, and blanket mortgages covering individual house mortgages which are eligible for insurance under section 203 (b) (2) of the National Housing Act.

In loans to cooperatives who build a rental housing project the loan may be for 90 percent of the replacement cost of the property with an increase of one tenth of 1 percent for each 1 percent of the membership of the cooperative which consists of veterans of World War II. present law bases the loan on the value of the property.

The

Under the second part of the section, which deals with individual houses, the percentage of the loan to the value of the property may be the same as that provided for the individual houses in the loan. Under both paragraphs the mortgages may run for 40 years and may bear interest not to exceed 4 percent per annum. We do. not feel that it is sound or necessary to make these loans, particularly those on individual houses of the type involved here, for a period of 40 years. In the first place the monthly payments in the early years amount to practically nothing, therefore the owner does not build up his equity to any appreciable extent in the early period of the loan. In the second place the houses are of a character which would depreciate faster than the payments reduce the loan.

I do not believe lending institutions, as a general rule, can profitably make these small loans at 4 percent. It costs a good deal to service them. The lending institution has substantial expense in servicing and in connection with foreclosure before they can get their debentures and the spread between 4 percent and their costs of doing business and handling these loans is not sufficient to make these loans attractive. We must bear in mind that a lending institution, particularly a Nationwide lending institution, has to employ a local servicing agent to collect the monthly payments. It has to enter these monthly payments— consisting of amortization, interest, taxes, and insurance, in separate entries on its books and has to look after the payment of taxes, hazard insurance as well as the proper maintenance of the property. When the net return on these loans is approximately the same as the rate on Government bonds they do not appeal to lenders.

Section 112 authorizes the Federal National Mortgage Association to make direct loans under insured section 213 dealing with cooperatives and also loans insured under 207 and 208. This provision puts the Government into the direct lending business up to its neck and takes practically all of the present loan market from private lending institutions. We think we should consider whether it is sound to take the market away from private lending institutions and turn it over to the Federal Government simply for one-half of 1 percent interest. I believe that if the interest is fixed at 41⁄2 percent for veterans' loans, and for these loans to cooperatives and large apartment house loans, that there will be no difficulty in placing them with private lenders. In the individual house loans of course the individual owner saves one-half of 1 percent while in the loans under sections 207 and 208 the saving is made by the corporate owner and the only benefit the middle-class tenant gets is whatever amount, if any, is reflected in his rent.

Insofar as our economy as a whole is concerned is it not better for our citizens to pay the one-half of 1 percent and permit our privateenterprise system to function as it always has done and pay a part of its profit to the Government in taxes than for the Government to go into the home-loan business on the enormous scale provided for in this bill?

We have no objection to section 112 of the bill which authorizes the Federal Mortgage Association to set up a secondary market for these mortgages. The savings and loan associations have invested a large part of their available funds in GI loans. They have made about one-third of these loans to date. Lending institutions generally would, we feel, make further GI loans if they knew they had a place to sell them when they needed the money with which to make still other loans.

I might say at this point that savings and loan associations, for the most part, hold their loans until maturity, and our activitiy in the secondary market has been very modest. In fact, savings and loans have sold only 1.3 percent of all GI loans they have made; and, while we do not have the exact figures on the sales to FNMA, we know that it represents a much smaller proportion-probably under one-half of 1 percent.

In connection with this secondary-market question we beg to call the committee's attention to Senate bill 880 which has been introduced in the Senate by Senator Sparkman. This bill provides that for a period of 18 months each of the 11 home-loan banks is authorized to invest not to exceed 50 percent of its assets in veterans' guaranteed or insured loans which it may purchase from member institutions, subject to the provision that no such loans would be bought from a member institution which has sold or is selling in excess of 25 percent of its GI loans which were held on the previous January 1 or in excess of 50 percent of such loans made since April 30, 1948.

The 11 Federal home-loan banks have in excess of $800,000,000 in assets and this bill would make available one-half of this amount for the purchase of these loans from member institutions. This bill in no way conflicts with the provisions in the legislation which authorizes the Federal National Mortgage Associations to buy these GI loans but supplements it. Ample funds are available in the banks to carry on the proposal and it would require no Government-appropriated moneys to operate it.