Mr. WILLIAMS. But that is just exactly what the R. F. C. does not have the right to do under the law now, as I understand it. We authorized the R. F. C. to establish a relief corporation. That is not the name of it, but a relief corporation to alleviate disaster, a loan corporation in the flood area. Mr. ABNER H. FERGUSON. Yes. Mr. WILLIAMS. We authorized them to do that. Mr. ABNER H. FERGUSON. Yes. Since the last session, at which this question was raised, I have talked with the general counsel of the R. F. C. and he is satisfied that it can be done. However, if there is any doubt about it, I think there should be a paragraph in this act expressly authorizing the R. F. C. to organizd a national mortgage association. Mr. WILLIAMS. The first question to decide is whether they should do it or not. Mr. ABNER H. FERGUSON. That is a question for you gentlemen to decide. Mr. WILLIAMS. Yes; but is it your thought, as sponsor for this legislation, that it is possible for the R. F. C. to go out and form mortgage associations to make these loans? Mr. ÅBNER H. FERGUSON. Yes. They can only under their charter make loans under section 207. They cannot originate small individual household loans under the provisions of the act, but I think myself personally that the national mortgage association provision here is the crux of this whole thing, because I do not see how we are going to get any housing started unless we can get contracts, and the money. Mr. WILLIAMS. Is it your thought that there will be no national mortgage associations formed unless the R. F. C. forms them? Mr. ÅBNER H. FERGUSON. That is a question of conjecture. I have always thought that the reason nobody was interested in national mortgage associations up to this time was because of the restrictive provisions of this act, and we have undertaken to remove those restrictive provisions. Mr. WILLIAMS. The R. F. C., of course, has been very friendly to this move, and tried to help it. Apparently they do authorize and recognize some of these national mortgage associations. Mr. ABNER H. FERGUSON. I do not know. They have institutions set up which could handle these mortgages. The RFC Mortgage Co. has been handling some of our mortgages. Mr. WILLIAMS. Under this act as it is written can a national mortgage association make loans on these small projects? Mr. ABNER H. FERGUSON. Under $20,000? Mr. WILLIAMS. Yes; under $20,000. Mr. ABNER H. FERGUSON. No, sir. Mr. WILLIAMS. They cannot make those loans? Mr. ABNER H. FERGUSON. No, sir. Mr. WILLIAMS. The purpose of this act is to enable them to make loans to the larger projects? Mr. ABNER H. FERGUSON. The act states in section 301 (a) [reading]: The Administrator is further authorized and empowered to provide for the establishment of national mortgage associations as hereinafter provided which shall be authorized, subject to rules and regulations to be prescribed by the Administrator, (1) to purchase, service, and sell first mortgages and such other first liens as are commonly given to secure advances on real estate held in fee simple or under a lease for not less than ninety-nine years, under the laws of the State in which the real estate is located, together with the credit instruments, if any, secured thereby, such mortgages not to exceed 80 per centum of the appraised value of the property as of the date the mortgage is purchased, and to make loans and advances upon, and to purchase, service, and sell mortgages or partial interests therein which are insured under section 207 of this Act. Mr. WILLIAMS. In other words, the national mortgage association, if organized, could buy and sell mortgages on all kinds of real estate? Mr. ABNER H. FERGUSON. Yes. Mr. WILLIAMS. But they can make loans and advances only for the construction of those projects under section 207? Mr. ABNER H. FERGUSON. That is right. Mr. WILLIAMS. The large projects above $20,000? Mr. ABNER H. FERGUSON. Yes; the large million-dollar loans and that sort of thing. The reason is that there is simply no money for the financing available, and one of the principal difficulties in the administration of section 207 is to find institutions to make those loans. Mr. WILLIAMS. Have you had any trouble finding institutions that would make loans for the smaller construction? Mr. ABNER H. FERGUSON. No; I do not think so. Do you mean the individuals? Mr. WILLIAMS. Yes; the ones under $20,000, on buildings and dwellings? Mr. ÅBNER H. FERGUSON. No; I do not think much difficulty. Mr. WILLIAMS. Has there been any recession in the construction of those homes in the last few months? Mr. ABNER H. FERGUSON. I cannot answer that off hand. Mr. WILLIAMS. You have not observed whether or not there has been any decrease in this line or any disposition on the part of people to cease building them? Mr. POWELL. Yes; there has been about a 35-percent decrease since July. Mr. WILLIAMS. What is the cause of that? Mr. POWELL. I imagine it is due to the general rise in the material prices, and labor costs, and uncertainty as to just what was going to be done about this act. Mr. WILLIAMS. Then there has been a gradual rise in the cost of materials and labor and in the cost of production? Mr. POWELL. Since July there has been a slight drop in material costs. Mr. WILLIAMS. What is the cause of that? Mr. POWELL. That I could not say. Mr. WILLIAMS. Have you any reason to question that there would be an added impetus given to this rise in the cost of material and labor if you built more houses? Mr. POWELL. I do not think so. I think under mass production you can produce these houses for a good deal less than they cost now. Mr. WILLIAMS. By going into mass production? Mr. POWELL. Yes, sir. Mr. WILLIAMS. But, how are you going to do that if you build an individual home out in my district and another one over here in Kentucky? How are you going to go into mass production that way? Mr. POWELL. A marked rise in cost has been in the large metropolitan areas. Mr. WILLIAMS. Has been. what? Mr. POWELL. The rise in costs has been in the large metropolitan areas. Mr. WILLIAMS. Has been what? Mr. POWELL. I say, Mr. Williams, the marked rise in costs has been mostly in the large metropolitan areas. Mr. WILLIAMS. In the large cities? Mr. POWELL. Yes, sir. Mr. WILLIAMS. Well, there has not been a general rise in the cost of production? Mr. POWELL. I do not think it has affected the smaller communities to as great an extent. Mr. WILLIAMS. You do not think it has? Mr. POWELL. No, sir; I do not think it has. Mr. WILLIAMS. Then what has been the cause of this drop in building in the small communities? Mr. POWELL. There has not been as great a drop in the smaller districts. The major portion has come in the large metropolitan areas. That is where the drop has been most noticeable. Mr. WILLIAMS. I am talking about the individual dwellings, you mean that they are building those in the metropolitan areas and not in the smaller towns and cities of the country? Mr. POWELL. The greater part of our business has come from the larger cities. Mr. WILLIAMS. Has there been any mass production, as you call it? Mr. POWELL. Not to any great extent, so far. Mr. WILLIAMS. Would this bill, if passed, aid to make for mass production as applied to individual homes? Mr. POWELL. It will stimulate an even flow of capital at a favorable rate. Mr. WILLIAMS. There is no change in the rate of interest, is there? Mr. POWELL. No, sir; there is not, except that we are eliminating the service charge. Mr. WILLIAMS. You think that alone will create a building impetus? Mr. POWELL. I think it might help. Mr. WILLIAMS. And create added construction of homes in the metropolitan areas without any increase in the cost of production? Mr. POWELL. Yes; I think it would help. Mr. WILLIAMS. You are very optimistic about that. I hope that is correct, but that is putting aside, is it not, every real law of supply and demand, that if we do certain things, if we increase the demand and a building impetus is started and the building program increases, has it not always had a tendency in the past to increase not only the cost of labor but the cost of materials that went into the buildings? Mr. POWELL. That has usually been the case, but there has always been, in this type of construction, a lack of proper financing, where money could be gotten in reasonable quantities and at a reasonable price. Mr. WILLIAMS. That would stimulate and add to the volume of building business? Mr. POWELL. I believe so. Mr. WILLIAMS. The greater volume the more demand, and the greater demand the higher prices. Mr. POWELL. That has not always been the case. Mr. WILLIAMS. Well, now, where has it not? Mr. POWELL. I did not get your question. Mr. WILLIAMS. I say, where has not that been the case? Mr. POWELL. Well, in home construction from 1921 to 1928 the major part of the additional rise in cost was financing charges, the method by which they could get financing for the building of homes. Mr. WILLIAMS. But there was also an increase in other things, was there not? Mr. POWELL. That is true. Mr. WILLIAMS. What has been the history since 1933 or 1934, when this legislation was enacted the first time, until the last act? Mr. POWELL. There was very little building in home construction from 1930 to 1935. Mr. WILLIAMS. I mean, say, from 1934 or 1935 until the recent recession in building, what was the history of interest, the prices of labor, and materials? Mr. POWELL. There was a very rapid rise in the cost of building materials. Mr. WILLIAMS. What about labor costs? Mr. POWELL. There were increases in labor costs also. Mr. WILLIAMS. Was there not an increased cost in building labor of all trades? Mr. POWELL. In certain types of skilled labor there were increases in wages partly because there was a shortage of skilled labor. Mr. WILLIAMS. Is not that true generally? Mr. POWELL. In some instances, in the metropolitan areas, there is a scarcity of skilled labor. Mr. WILLIAMS. It is true all over the country? Mr. POWELL. I do not know. Mr. WILLIAMS. An increased demand, according to the ordinary rule of supply and demand, would increase the price of that labor? Mr. POWELL. We still feel if there is mass production that might in part be taken care of. Mr. WILLIAMS. I do not see how you are going to have mass production scattered over individual communities scattered over 3,000 miles of territory. Mr. POWELL. In the building of homes in certain areas they are building on a larger scale for sale by mass production, and they have been in a position to reduce their costs in better types of construction by better planning. Mr. WILLIAMS. You mean to say some one contractor would have all of these contracts? Mr. POWELL. Some contractor might build all the way from 2 to 200 homes, depending on the demand locally for homes. Mr. WILLIAMS. You mean to limit the construction to just a few contractors in the country and give them a monopoly on the business? Mr. POWELL. No, sir; we do not. Mr. WILLIAMS. Then, of course, you throw open the field for every individual contractor to come in and do the work? Mr. POWELL. That is correct. Mr. WILLIAMS. Just as it always has been done. Mr. POWELL. That is correct. Mr. WILLIAMS. I still do not see how you are going to have mass production in the manner suggested. Mr. MCKEOUGH. Will you yield there? Mr. WILLIAMS. Yes. Mr. MCKEOUGH. I wonder if the gentleman that is now the witness has in mind control of this added cost through this proposal of negotiation that the President refers to in his message with the material men and the labor interests for the purpose of developing an annual wage for labor and a control in the rise of the material cost? Do you have that in mind when you speak so optimistically of this not creating an added cost in material? Mr. POWELL. We had hoped that could be brought about. Mr. MCKEOUGH. Would you state whether or not your negotiations in that direction have led to any basis for your hope? Mr. POWELL. The Administration itself has had no direct negotiations along that line. Mr. MCKEOUGH. It is purely hope? The CHAIRMAN. Gentlemen, let me suggest, that Governor Eccles is back here this morning, as somebody suggested that he come back. These other gentlemen can be heard later. Governor Eccles has an appointment to go before the Senate committee tomorrow morning, and because of that, I would like to ask Governor Eccles to proceed if he has any further statement to make. STATEMENT OF GOV. MARRINER S. ECCLES, CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM-Resumed Mr. HANCOCK. Mr. Chairman, I think Governor Eccles indicated the other day that he would be willing to discuss the merits of title I as proposed in the amendment reopening it. Mr. WILLIAMS. I would like to have some answers on title III too. Mr. ECCLES. Title I was very successful in its previous operation. It was discontinued at a time when business was going at a much more rapid pace than it is today. It seemed at that time it was neither necessary nor desirable to have the impetus that was given to the activity promoted under title I. I do not know that it has a very important aspect in the present situation. It is felt that it may do some good, that there is a certain amount of work, no doubt, that would be under title I. Whatever work was done here we would be just as much to the good. As I say, I do not think of it as a major matter at all. Mr. HANCOCK. Governor, do you think it is right or wise for the Government to encourage 9.7-percent interest charge by indemnifying or protecting the lending institutions against loss? Why not do something to protect the borrower on the same principle? Mr. ECCLES. I think that type of financing is very expensive. The cheapest type of installment financing on a short time basis in small amounts is much larger than 9.5 percent. That certainly does not yield a net return. The larger financing companies, the most successful, those having national operation, get closer to 12 percent on installment financing. Mr. HANCOCK. But the Government is not doing anything to encourage that high rate? That's strictly private installment financing which in some cases has been unconscionable. |