The CHAIRMAN. I want to thank you very much for your able statement.

Mr. Ramspeck, will you please come around? Gentlemen, this is Congressman Robert Ramspeck. I do not need to introduce him. He had asked to appear before the committee for 5 minutes, and I know we shall be glad to hear him.

STATEMENT OF HON. ROBERT RAMSPECK, MEMBER OF THE HOUSE OF REPRESENTATIVES FROM THE STATE OF GEORGIA

Mr. RAMSPECK. Thank you, Mr. Chairman. I want to thank you and the committee for the opportunity to appear here in support of the President's recommendation for the reenactment of title I of the Housing Act, and especially do I want to urge upon the committee consideration of permitting under that reenactment of title I the construction of new dwellings at a cost not exceeding $2,000.

My reason for that, gentlemen, is this; that under title I, when it was in existence, some of the banks in my district made loans for new construction, and they found it a most satisfactory practice. The loans were satisfactory and enabled people of small means to build small houses in the suburban and rural sections of my district.

Under title II of the act that type of people have no opportunity to participate, because they are not in position to finance the more expensive dwellings that would have to be built in accordance with the specifications and rules governing title II, but the building material people and bankers who made loans in my district under title I tell me that they got more real benefit from that, and particularly were they happy to have the privilege of letting these people of low incomes build small houses out in suburban sections around Atlanta, and that is the purpose of my appearance here, to urge upon the committee the specific authority under the reenactment of that title for new construction up to $2,000. I have been told that the housing administrator, Mr. McDonald, has no objection to that feature being injected into the reenactment of title I, and I hope that is correct.

And I might point out this to the committee, which I am sure they would see any way, that that is about the only way that a great many sections of our country could get any benefit out of this Housing Act, because under title II they do not go into the suburban and rural sections of the country, and therefore a great many of our people haven't had any opportunity to participate under that title; but under title I if you give that authority we could even build houses on the farms in this country; and I think it would be a splendid thing. I know down in our section of the country we need some new farmhouses and some better farmhouses, and I would like very much to see it done, and I hope the committee will give it that direction.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. Ramspeck. We have been glad to have your statement.

STATEMENT OF HON. PETER J. DeMUTH, MEMBER OF THE HOUSE OF REPRESENTATIVES FROM THE STATE OF PENNSYLVANIA

The CHAIRMAN. Gentlemen, this is Representative Peter J. DeMuth, of Pennsylvania. Mr. DeMuth, we are glad to have you here and shall be pleased to hear any statement you wish to make.

Mr. DEMUTH. Mr. Chairman, from the way I understand this bill, in order for a contractor to get a construction loan he must apply for a loan to build 25 houses or more, and for a mortgage in the amount of $16,000 or more. After talking to a number of builders-supply men, I feel that there are many contractors in the country that have been very good risks so far as character is concerned, and this number is so great that they have built the majority of small homes in the country. There are many of them that could and are ready to build now-provided they are able to get construction loans, and I think that they should be permitted to get construction loans on a smaller number of houses than 25. I do not think we should urge them to overstretch themselves on the number of houses they should build, nor should we pass legislation to discriminate against the smaller builder in favor of the larger building corporation.

Mr. HANCOCK. Where do you find any such restriction in the bill? Mr. DEMUTH. Under the F. H. A., the way I read the act, referring to page 29, section 210-A.

Mr. MCGRANERY. Commencing on page 28, do you mean?

Mr. DEMUTH. Yes; the bottom of page 28. Isn't that the only place?

Mr. McGRANERY. That is right.

Mr. DEMUTH. That is the only place there in the act where a construction loan is provided.

Mr. MCGRANERY. And what was your thought on that?

Mr. DEMUTH. I think the $16,000 provision that they have in there is all right, but I think that should be cut down to five single dwellings.

Mr. McGRANERY. You have in mind I suppose the small communities where 25 houses might even be too many. Is that right?

Mr. DEMUTH. That would be a large number of houses, and a man starting out would want to feel his market. He would not want to go out and start 25 houses when there may be only a market for four or five houses. It would be bad for the Government, because eventually that would react.

Mr. FORD. He can still get that loan through the regular F. H. A. procedure.

Mr. DEMUTH. He can get a loan, but how is he going to originate that program? He needs a construction loan.

Mr. MCGRANERY. He cannot get it under sections 203 and 207 unless he builds 25 single-family dwellings, or one or more multiplefamily dwellings. It cannot be done.

Mr. DEMUTH. What is he going to do for money to pay his laborers and his materialman? The chances are he could get the materialman to go along, because he is a good risk, but labor would want to be paid.

Mr. FORD. Do you understand that he gets the money? Who does he get this money from, as you understand this section?

Mr. DEMUTH. From the Reconstruction Finance Corporation, under this.

Mr. FORD. Where do you get that?

Mr. DEMUTH. That was my idea.

Mr. HANCOCK. He can get the money from any lending institution. The only thing is, the Federal Housing Administration would have to insure the advances.

Mr. WILLIAMS. This section does not give him any money. It simply provides him with insurance on that.

Mr. McGRANERY. That is what he is getting at.

Mr. DEMUTH. On construction? He could not under the mortgage get the money until the mortgage is signed and the suppliers release liens to the mortgagee, showing that all his bills are paid, but this section here provides for a construction loan.

Mr. McGRANERY. In other words, he cannot get a construction loan; that is what you mean?

Mr. DEMUTH. That is right.

Mr. MCGRANERY. That is, money that is to be used in the construction of the dwelling. Is that right? Is that what you mean? Mr. DEMUTH. That is right.

Mr. FORD. I should think that in building five homes, he could get one F. H. A. loan and complete that house, and then when he completed that he could do the same thing again, and continue to do that, and in that way he would naturally not have to come under this.

Mr. DEMUTH. No; but your providing, the way I interpret this, a means of supplying capital to the large builder for constructing homes and to initiate the program, whereas the small man, the small builder does not have any chance.

Mr. FORD. We do not provide capital, in the first place, to anybody. Mr. DEMUTH. You supply a means of his obtaining a loan.

Mr. FORD. We set up machinery for the insuring of his loan, which presumably will induce private capital to go into it because of the fact that the loan is insured, but there is no reason why this man who is ultimately going to build but five houses should not build them one at a time and get his loan in the regular way.

Mr. McGRANERY. Mr. DeMuth, is this what you have in mind? Where a contractor in some small community has only a need for 5 to 10 new houses in that community, he has his set-up. Under the law, as I read it, you are absolutely right, if you and I agree as to where we are going on this thing. Before he can have that mortgage insured he must submit a plan to the F. H. A. of the type of construction of the houses—that being approved by the F. H. A.-do you see? Mr. DEMUTH. Yes.

Mr. MCGRANERY. That then there can be an advance from the renting agency, whoever it may be, to the materialman, to the laborer, and to what not, to pay for the construction as it proceeds.

Mr. DEMUTH. That is right.

Mr. MCGRANERY. That is what you have in mind?

Mr. DEMUTH. Yes, sir.

Mr. McGRANERY. I thought that was it.

Mr. WILLIAMS. Why can they not do that as well for 5 as for 25? What is your idea?

Mr. MCGRANERY. The law limits it.

Mr. DEMUTH. The law limits it by saying "not less than 25." Mr. WILLIAMS. But go back to the other provision, section 203. Mr. MCGRANERY. There is no construction loan guaranty provision there at all. There is no provision for that.

Mr. DEMUTH. There is no provision on the one, but there is a provision on 25 or over.

Mr. WILLIAMS. Does not the F. H. A. make commitments as the building progresses and the money is advanced by the bank or the

mortgage company or whoever advances it in the one case just as they do in the other?

Mr. DEMUTH. No; they do not, under the present law, from the way I understand it.

Mr. HANCOCK. Mr. Chairman, Mr. McDonald is here, and I think he could very readily clear up that point for us.

Mr. DEMUTH. Yes; I would be glad to have that done.

The CHAIRMAN. I was reserving questions until Mr. DeMuth had finished, but if you desire you may ask Mr. McDonald that question at this time.

Mr. McDONALD. On the individual houses up to 25 there are available facilities for construction loans. There are the building and loan societies and the local banks. The Federal Housing have not the staff, have not the facilities to keep track of these individual houses while they are under construction, yet the local man on the ground has, and that is why we did not want to include in the act any construction unless it was sizeable in amount.

Mr. MCGRANERY. But then you get back, Mr. McDonald, to the proposition, as I follow the gentleman, where you are relying solely on the lending agency in that community, and suppose they say to him that this is not attractive enough, they do not want it?

Mr. McDONALD. That is for the individual house? That would be true.

Mr. MCGRANERY. Then they are out of luck, in other words?
Mr. McDONALD. That is true.

Mr. MCGRANERY. I think we should make some provision for that. Mr. DEMUTH. Suppose it were four houses or five houses? I would like you to name me one building and loan or one bank in Allegheny County or the city of Pittsburgh that will do that.

Mr. McDONALD. I am not familiar with Pittsburgh.

Mr. MCGRANERY. Mr. McDonald, you feel that to change this for less than 25 might place an undue burden on your organization?

Mr. McDONALD. Precisely. We would have to see that the contractor was under bond, otherwise we might be handed a lot of halffinished houses. If he had difficulty with a contractor he could simply call the thing off and demand our insurance on the other, the unfinished house.

Mr. MCGRANERY. Is there any other objection to this feature? Mr. McDONALD. That is all.

Mr. McGRANERY. That is the only thing?

Mr. DEMUTH. Could you not make that contractor subject to your approval?

Mr. McDONALD. Yes; but when you get down to one house at a time

Mr. DEMUTH (interposing). Make it four or five houses, and you could easily have your man investigate that contractor through his building-material man from whom he has bought over a period 4 or 5

years.

Mr. McDONALD. To make construction loans, Mr. Congressman, it is necessary to make repeated and continuous inspections, and for small individual houses we have not the facilities for it.

Mr. MCGRANERY: Mr. McDonald, is it not true that with this provision in the law you are going to stymie the building of these very

small communities, that this will only apply to metropolitan areas, where they are going to get the full benefit of it?

Mr. McDONALD. I do not think so. Our experience has been, so far, that 40 percent of the F. H. A. loans have been made in cities under 25,000 inhabitants.

Mr. MCGRANERY: That was the limit you set?

Mr. McDONALD. Yes.

Mr. DEMUTH. I will say that 90 percent of the houses that were built during the boom years in the city of Pittsburgh were built by men such as that, and you are eliminating them entirely from the picture, and they can build and give more value for the money than the larger contractor because they do not have the overhead, and they also give to it personal supervision and attention.

I would also suggest that the office and overhead expense in connection with the insurance of the mortgages be carried out of the general appropriation, not charges as an expense against the insuring of the mortgage when the mortgage is approved.

Mr. MCGRANERY. What is that? I do not follow you.

Mr. DEMUTH. The elimination of office and overhead expenses in connection with the mortgage pool to be eliminated, that only the direct losses suffered on any of the mortgages be charged against the pool. I do not think Mr. McDonald would have any objections to that. It is a matter of bookkeeping there, and it also is a matter for the administrator to decide how much of his general expense he is going to charge against the mortgage pool.

Mr. MCGRANERY. You mean to eliminate the entire overhead of the administrator?

Mr. DEMUTH. Yes; against the mortgage pool.

Mr. ABNER H. FERGUSON. You mean by that the mutual mortgage insurance fund?

Mr. DEMUTH. Yes.

Mr. ABNER H. FERGUSON. Then Congress will appropriate it?

Mr. DEMUTH. Yes; Congress will appropriate it. I believe it would simplify that feature. Do you know of any particular objections to that, Mr. McDonald?

Mr. McDONALD. I do not believe I am in a position to discuss that right now, Mr. Congressman.

Mr. FORD. When you take out insurance with an insurance company, that being a private company, where do they get their overhead? Where does the insurance company get its overhead?

Mr. DEMUTH. Oh, for the insurance policy, of course, but here you are asking a private individual to build a home in order to give work and buy material, in order to take people off the unemployed lists. He is willing to put his money in that program, cooperating with the Government, and besides I do not think they should charge any insurance at all, because the saving to the Government in the long run is going to be much greater than the small "mortality", you might say, that is going to occur on these mortgages according to the history of the mortgages under the F. H. A. as now in effect. And when you consider what they are doing for the renter, where you are reaching practically the same class, you are not making, you might say, any concession.

Mr. FORD. That is true on the low-cost housing.