The new amendment in section 7 goes a step further as it extends the home owners' borrowing capacity from 80 percent to 90 percent of the cost of construction, of an amount less than $6,000, provided the mortgagor shall be the owner and occupant of property at the time the mortgage is accepted for insurance, and has paid at least 10 percent of the appraised value of its equivalent. The act provides further that the premium charge for the insurance of the mortgage will not be less than one-half of 1 percent per annum, nor more than 1 percent of the principal obligation outstanding, except that the premium charge as to the mortgage described in paragraph (B) of subsection 2 of section 203 (b) may be onefourth of 1 percent per annum on such outstanding principal.

Another important change, in my humble opinion, in the existing law, which will have a strong tendency to syphon the money held in the vaults of lenders, is noted in the amendment to section 25 of title 2 by adding a new section 210. This change raises the borrowing capacity of the mortgagor, involving a principal obligation in an amount in excess of $16,000 but not in excess of $200,000 and not in excess of 80 percent of the amount estimated by the Administrator to be the value of the property, when the improvement is completed and such part thereof as may be attributable to dwelling use shall not exceed $1,000 per room, and providing for a maturity of not to exceed 20 years and amortization provisions satisfactory to the Administrator.

The CHAIRMAN. I am glad to introduce Congressman George G. Sadowski member of the House of Representatives from the State of Michigan. You may proceed, Mr. Sadowski.

Mr. SADOWSKI. Mr. Chairman, I represent an industrial district in the city of Detroit, 4 miles wide and 8 miles long, with approximately 400,000 people living in it.

The provisions of the F. H. A. Act have been a wonderful thing for most of the city of Detroit, but the act has not up to the present time been of much benefit to my district, because the people living in my district are factory workers. They cannot afford to own a home costing more than say $6,000. Under this new bill I hope that that is going to be remedied. I hope it is going to open the gates to these factory workers. I hope they will have an opportunity to buy homes inder the F. H. A.

I have listened to quite a lot of testimony before this committee, and it seems to me that a lot of people representing financial institutions come here in the position of the dog in the manger-they themselves have not done anything to help my city, to help the people in my district obtain loans, to obtain mortgages, to obtain new homes, and yet they want to stop this committee, and they want to stop this legislation from becoming effective.

I feel that the President's program is a great program. I feel convinced after listening to the testimony here and making a study of the bill that there is going to be an outlet for these small mortgages through a national mortgage association. That is the thing we need. The problem that I have in my district is the same problem that every Congressman has in every large city in the United States of America, and I certainly hope that this piece of legislation will be reported out now and be enacted into law now; that it will not be carried to the regular session.

I hope the Senate will act now.

That is about all I have to say, Mr. Chairman. I hope we get this out very speedily and that this committee acts on it at this special session, that we have an opportunity to vote on it.

The CHAIRMAN. Thank you, Congressman Sadowski. If you wish to, you may amend your statement and if you so desire you have leave to extend your remarks in the hearings.

STATEMENT OF FRANK CARNAHAN, SECRETARY OF THE

NATIONAL RETAIL LUMBER DEALERS ASSOCIATION

The CHAIRMAN. Mr. Carnahan.

Mr. CARNAHAN. Mr. Chairman, as secretary of the National Retail Lumber Dealers Association, I represent 21,000 material dealers in the United States. I have here one of our retail dealers, a prominent retail dealer from Boston, Mr. Hawkins, who is also a builder and also a financial man, and if he can make a few statements after I get through making a short statement in regard to the national mortgage associations, I would be grateful to you.

We think the situation under this legislation and the President's suggestion for the formation of a $50,000,000 national mortgage association with R. F. C. funds is one of the greatest things that could be done to help this building program. I say that because, contrary to the general belief, one of our biggest problems today in the smallhouse field is initial financing and mortgage money. In other words, a retail lumber dealer is in a position to go out and get his prospect and build his home, but his local bank will not or cannot under certain circumstances take that initial mortgage unless he has some reservoir or some place to put it.

I want to give you one example on that and show you it worked out. You put an amendment in the R. F. C. Act to permit the R. F. C. to buy through their mortgage company, F. H. A. insured mortgages. We worked out through the administrative offices of the R. F. C. and the F. H. A. a plan whereby the R. F. C. would take those mortgages from these small banks in these small communities, taking them at 41⁄2 percent, which would allow the local bank 1 percent for the servicing.

The banks then opened up in order to assist local communities, by supplying the initial mortgage, and immediately converting it and turning it into this reservoir of the R. F. C. In the State of Mississippi, where they were doing practically nothing at all, the R. F. C. pumped about $5,000,000 in mortgage money into that State, and into the State of Texas, $11,000,000, I think altogether about $25,000,000. In turn, the R. F. C. has sold, I do not know just what the current figure is, but a tremendous number of those mortgages that they have purchased, in turn to insurance companies and savings banks and financial institutions.

Now, Mr. Chairman, if I can ask Mr. Hawkins

Mr. MCKEOUGH (interposing). Do you have any objection to the 20-to-1 ratio and the $50,000,000 the R. F. C. is supporting on the national mortgage?

Mr. CARNAHAN. No, sir, we do not.

Mr. MCKEOUGH. Do you think the 20-to-1 ratio of the $50,000,000 of the R. F. C. which was put into the National Mortgage Association was a safe program?

Mr. CARNAHAN. Yes.

STATEMENT OF VERNON M. HAWKINS, PRESIDENT OF THE HAWKINS LUMBER CO., BOSTON, MASS.

Mr. HAWKINS. Mr. Chairman, my name is Vernon M. Hawkins, president of the Hawkins Lumber Co., Boston, Mass.; past president of the New England Wholesale Lumber Dealers Association; past president of the Northeast Retail Lumber Dealers Association; past president of the Lumber Trade Club of Boston; former district sales director for Sears-Roebuck, in charge of their home construction, for New England; national code directors for New England, and otherwise I have been steeped in this industry ever since I was a tally boy, and I am glad to come here today.

I was interested, gentlemen, in hearing what the bankers had to say about their interest. I think that is a secondary consideration. Furthermore, I am satisfied that the bankers, when the lumber and material man and the contractor and laborer will put their money into a house, then they are ready to loan the money on it. Then after we put in about 15 or 20 percent of the value of that house, they want us to endorse their note. We do not have to ask them to do that. We can get the money through the F. H. A. without it.

I hope some way will be found where that will be possible. Furthermore, I want to urge your support of the National Mortgage Co. That is one thing that has been needed in this country for a great many years, to make mortgages and real estate, the basis of our national wealth, liquid, and to have a liquidity equal to investments in this country.

I also want to urge the 90 percent loans. It is 71 percent now, according to their testimony here that I have listened to patiently and with a great deal of interest.

Also we want the restoration of title I. It reaches out into the hamlets and byways and small places which probably need some new construction and gives labor an opportunity for the small house to be built. We are back of and in support of the desire for people to build homes.

Today it is a mystery-it has been a mystery up to the time of the education as put out by the F. H. A. They have done more to take the mystery out of home building than any other thing that has happened in this country in my 25 years in the lumber business.

I do not think there is anything more I can say, Mr. Chairman, You have been very patient with a lot of these witnesses. I hope you will be patient with me, by asking that I discontinue now, so I presume you can adjourn.

The CHAIRMAN. Thank you very much.

Mr. MCGRANERY. I have a gentleman here from Philadelphia who is a very important builder, building more invividual homes than any other man in America, I think. Mr. McClatchy.

STATEMENT OF JOHN H. MCCLATCHY,
H. MCCLATCHY, DIRECTOR, HOME
BUILDERS' ASSOCIATION, OF PHILADELPHIA AND SUBURBS

Mr. MCCLATCHY. That is an exaggeration, Mr. Chairman.

I came here yesterday with a delegation representing the Home Builders' Association of Philadelphia and suburbs, of which I am a director.

Before reading the statement which we have prepared, which will be very brief, listening to the discussion here the last day or two, I wanted to make in a very brief way a contribution to this discussion, which is the result of a long experience. I have been in this business since 1888. I do not look it, but I have, and I have built as many as 800 or 900 small homes a year. Our business has been exclusively the building of small homes.

As a matter of actual experience I can tell you that up until 1929, with the thousands of homes we bulit, I do not believe we had 100 foreclosures, and they were all sold on a 10 percent down payment.

As an experiment last year, with the limited capital I have, I built 97 houses on a very easy payment plan, a little less than 10 percent, and we sold 40 of them in one day. They were under $4,000 in price, of brick and stone, small Philadelphia solid row houses, substantially built, and today we are offering houses for sale at $4,300, with an absolutely sworn statement of profit of not over $150, no commission paid to anybody, and those houses are equal to your better and a little larger homes with more improvements, than I sold 10 years and more ago for $5,500, and at that time we sold in 1 year over 500. It may have been a little over 10 years ago.

Now the reason we have not been able to sell these houses today is owing to the the 20 percent, and we believe firmly-we know that there are at least 20 people to the one who did not purchase some of these houses who would have bought if the down payment was smaller. I have rather radical thoughts on the question of small homes. I have tried to give some of my thoughts to the Federal Housing Administration.

The CHAIRMAN. It is your idea that the 90 percent provision in this bill is constructive?

Mr. MCCLATCHY. That it is constructive, and absolutely safe.
The CHAIRMAN. You lend your ednorsement to that?

Mr. MCCLATCHY. It is absolutely safe.

Mr. McGRANERY. Mr. McClatchy, how many houses, or do you know, surrounding metropolitan Philadelphia, under construction at this time?

Mr. MCCLATCHY. I would say possibly 2,000.

Mr. McGRANERY. How is the passage of this bill going to affect the houses now under construction?

Mr. MCCLATCHY. I want to suggest an amendment, which I will read into the record and leave with you, whereby this bill could be amended so that its provisions as to 10 percent will apply to these houses that have been started within the last year; all of course to be subject to the final inspection of the F. H. A.

Mr. MCGRANERY. What prompts you to offer this amendment? Mr. MCCLATCHY. If the amendment is not passed, you are going to stop the substantial builders who have built these 2,000 homes, and with this discussion of 10 percent, which strains people to put up that cash, you are going to stop the builder from going on, because those people are waiting on this 10 percent business, and you will simply stop that man and he will not be able to go ahead, and they represent the best and most substantial builders in the city. He will not be able to go on unless you allow the provision to extend to those houses at present under construction, all under the $6,000 class.

33604-37--17

Mr. WILLIAMS. They did not have that in view when they started to erect them, did they?

Mr. MCCLATCHY. No, but they have been penalized now, and ruinously penalized, by the discussion about 10 percent, because people are just waiting.

Mr. McGRANERY. You mean by that that these 2,000 houses which you have built now around Philadelphia, which are in the course of construction, are affected?

Mr. MCCLATCHY. Houses that our association has under construction.

Mr. MCGRANERY. What is your experience with respect to the sales of those properties at this time?

Mr. MCCLATCHY. I have mentioned one point. I do not know just what that may have been, but we would have had 20-to-1 buyers who could have bought those houses with 10 percent, who are unable to pay 20. That seems strange but true. As you go down the ladder it increases very rapidly.

Mr. MCGRANERY. Are people awaiting the outcome of this bill? Mr. MCCLATCHY. People are awaiting the outcome of this bill; very definitely awaiting it.

Mr. MCGRANERY. In other words, Mr. McClatchy, as I understand the situation, houses that have already been built or are about completed, or houses under construction in the $6,000 class, I take it, are hard to dispose of at this time?

Mr. MCCLATCHY. They are hard to dispose of at this time. It does not extend only to Philadelphia but all over the United States, and I think you are going to stop the substantial builder and you will not get the immediate reemployment, unless you extend it to those houses which are at present under construction or which have been under construction within the last 12 months and are unsold, of course, today, because that type of builder will go immediately into large volume.

Personally I will start immediately 300 places under $6,000.

Mr. McGRANERY. You say you would start immediately with 300 houses?

Mr. MCCLATCHY. 300 houses, yes; of the modern description, $4,000 to $6,000. They would be brick and stone, small Philadelphia solid row houses, substantially built. They would include a garage. You know the usual type of row house.

Mr. MCKEOUGH. In view of your experience, leading to optimism about this bill if it were adopted, do you feel you would encounter any disability in reaching an amicable settlement with labor, to protect against increasing costs by that program?

Mr. MCCLATCHY. I have had experience with labor, and I believe that they will be reasonable. There would be some trades that might raise some question, but I think they would be reasonable.

Mr. MCKEOUGH. You do not anticipate any disability in requiring labor to make this contribution to the program and maintain a fair rate with a guaranty of some kind for a long term?

Mr. MCCLATCHY. I would like to make a statement that would not be in the record, and not for publication.

The CHAIRMAN. Very well.

(Discussion off the record.)