FURTHER STATEMENT OF RICHARD C. DYAS, CHIEF, HOUSING Mr. COLE. Do you have any agreements with Lustron? Mr. COLE. Are you able to state whether RFC is satisfied with the management of Lustron? Mr. DYAS. Let me say we are not dissatisfied. There, again, we have no yardstick we can switch to measure our views. May I amend my former remarks in one respect, Congressman, if I may take a moment? I gave you some statistics with respect to the number of loans we made under the National Defense Authority and the 102 authority. I would like to add to that that in addition to the statistics I gave you, we have made some 30 to 40 million dollars additional loans to aid in housing construction, the major proportion of which has been made to aid prefabricated houses. That is one amendment I would like to add to my previous remarks. Mr. MULTER. Possibly the way to help them with their problem is for Lustron to take back purchase money mortgages and sell them to FNMA. Mr. DYAS. I am glad you made that observation. The CHAIRMAN. We will meet tomorrow at 10 o'clock. (Whereupon, at 4:50 p. m., the committee was adjourned, to reconvene at 10 o'clock, August 5, 1949.) 94397-49-29 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met, pursuant to adjournment, at 10 a. m., Hon. Brent Spence (chairman) presiding. Present: Messrs. Spence, Brown, Monroney, Buchanan, Multer, Dollinger, Mitchell, Gamble, Kunkel, Talle, McMillen, and Cole. The CHAIRMAN. The committee will be in order. Dr. O'Leary will be the first witness. Will you take the stand and identify yourself for the purpose of the record, Doctor? STATEMENT OF DR. JAMES J. O'LEARY, DIRECTOR OF INVESTMENT RESEARCH OF THE LIFE INSURANCE ASSOCIATION OF AMERICA Dr. O'LEARY. My name is James J. O'Leary. My statement has reference to H. R. 5631. It is respectfully submitted on behalf of the American Live Convention and the Life Insurance Association of America, jointly representing life-insurance companies which underwrite over 95 percent of the life insurance in force in United States. companies. These organizations have a combined United States membership of over 225 companies, with resources exceeding $50,000,000,000, belonging to about 78,000,000 policyholders. A recent survey made by the Federal Reserve Board shows that 67 percent of all spending units roughly analogous to families-with incomes from $1,000 to $2,000 and 84 percent of all spending units with incomes between $2,000 and $3,000 own life insurance. Seventyeight percent of all spending units own life insurance. The live-insurance companies, consequently, have a primary interest in the same broad mass of people in which your committee is interested. As I shall show later in this statement, the life-insurance business has played an important part in financing the postwar housing needs of this country, and we hope to play a continuing important role. It is for this reason that I appear here today to oppose H. R. 5631, par ticularly the direct Government lending provisions in the bill. This bill is not only unnecessary in the present housing market, but if passed it will undoubtedly further hamper the free flow of funds into housing via normal market channels. It is but one more step in a long series of Government measures which have been narrowing down the sphere of free initiative in the operation of savings institutions in the housing and mortgage lending field. It is but one more step in a process in which the Federal Government has been crippling the normal functioning of market forces in the housing field. We in the insurance business are most apprehensive about excessive Government interference in our system of free enterprise. We are fearful of the State catering to special classes on welfare grounds. Such developments cause a national economy to bog down in inefficiency and breed the need for further interference. The situation in Great Britain today is illustrative of the dangers of a governmentcontrolled economy and a welfare state. Not only does this type of economy lead to economic inefficiency, but it also presents a threat to the preservation of individual liberties. Because the provision of good housing contributes to the health and welfare of our people, and more narrowly because mortgage lending and housing normally afford important investment outlets for policyholders' funds, the life-insurance companies are very much interested in the maintenance of a high and stable volume of home construction. Here are some salient facts indicating the part which the insurance business has played in providing funds for housing in the postwar period. The volume of mortgage debt held by life insurance companies on one- to four-family nonfarm homes rose from $2,258,000,000 on December 31, 1945, to $4,900,000,000 at the close of 1948, an absolute increase in this 3-year period of $2,642,000,000, or a percentage increase of 117 percent. During the same period the total mortgage debt in the country on one- to four-family nonfarm homes increased at a slower rate, namely 74 percent. At the end of 1948 the life-insurance companies held $6,700,000,000 of loans on housing, of which, as we have seen, $4,900,000,000 were on one- to four-family nonfarm homes, and $1,800,000,000 were on multi-family dwellings. Of the $4,900,000,000 of loans on one- to four-family homes, $2,009,000,000 were guaranteed under the Veterans' Administration program. During the 2 years 1947-48, life-insurance companies increased their holdings of FHA-insured mortgages by $887,409,000 and VA-guaranteed mortgages by $844,757,000. Data gathered by the Life Insurance Association of America from 49 member companies representing over 89 percent of the total assets of all United States legal reserve companies show that the volume of FHA mortgages held by these companies increased steadily from $944,373,000 on January 31, 1947, to $2,234,783,000 on May 31, 1949, and mortgages guaranteed by the Veterans' Administration increased from $227,653,000 to $1,008,101,000 in the same period. Life-insurance companies have also been active in the building of large-scale rental housing projects. A recent survey conducted by the Institute of Life Insurance shows that, as of May 1949, 41 projects had been completed and occupied. They represented an investment of $275,000,000 and are providing housing for approximately 34,500 families. In addition, rental housing for 12,000 families representing an investment of $185,000,000 is now under construction with nearly onehalf of the dwelling units completed and occupied. Planned, but not yet under construction, are projects which will provide housing for 500 families and will involve an investment of $15,000,000. The grand total of large-scale rental housing already completed, under construction, and in the planning stage adds up to 47 projects providing housing for 47,000 families and involving an investment of $475,000,000. Two closely related factors have obstructed the flow of funds into housing in the postwar period; namely, inflation and artificially low interest rates. In large measure the postwar inflation was the outgrowth of the war financing program, which expanded enormously the money supply in the hands of our people. Nevertheless, contributing heavily to the spiral of prices in the postwar period was the easy-money program of the Federal Government. General inflationary forces have slackened in recent months, but they are still strong in the housing field. In spite of an enormous demand for capital funds since the end of the war, which caused a strong tendency toward rising interest rates, the Government acted to prevent a rise of rates. In the mortgagelending field, the Government has frozen rates on loans under the Veterans' Administration and the FHA and has insulated these rates against market forces by utilizing the Federal National Mortgage Association as a residual purchaser of mortgages. Major provisions in H. R. 5631-namely, the further extension of the purchasing power of FNMA and direct loans to veterans and direct loans for the financing of cooperative housing-are the inevitable consequences of the Government's attempt to insulate mortgage interest rates against market forces. The Government policy of maintaining artificially low interest rates, with resultant contribution to inflationary pressures, has hampered. home financing by life-insurance companies in two important ways. At the very high prices for housing today, an artificially low structure of mortgage interest rates does not provide ample compensation for increased risk and discourages mortgage lending of trust funds. Also at present high prices many life companies have been forced reluctantly to abandon plans for large-scale rental housing. The fact has been that with building costs so high it has been impossible for life companies to build housing to rent at prices which the general public can afford to pay. They are most anxious to move into this field in large volume just as soon as costs come down. Accordingly, Government policy has created a situation in which life companies find it difficult to build rental housing and to make VA loans on a sound basis. The remedy to this situation is a greater willingness on the part of the Government to permit the rate on mortgage loans to be determined by market forces, along with a reversal of inflationary policy in the housing field. Instead, this bill, through an extension of the purchasing powers of FNMA and direct loans to veterans and for the purpose of financing cooperatives, will serve to maintain a highly artificial situation in the mortgage market and will further narrow down and hamper the lending activities of life-insurance companies. In the housing and mortgage-lending field, we have been witnessing a perfect example of the fact that Government interference with the functioning of the free market mechanism breeds the need for greater and greater interference by Government. It has also been clear that subsidies to special classes breed upon themselves. It is for such. |