STATEMENT OF H. R. NORTHUP, EXECUTIVE VICE PRESIDENT, NATIONAL RETAIL LUMBER DEALERS ASSOCIATION

Mr. Chairman and members of the committee, I appreciate this opportunity to present to the committee the views of the members of the National Retail Lumber Dealers Association on Senate bill S. 1800 pending before your committee.

This bill would provide for the continuation of certain programs of the Housing and Home Finance Agency.

Mortgage insurance authorization

S. 1800 would increase the authorization for FHA mortgage insurance by $4 billion. This additional authorization is necessary to assure continuation of the FHA programs and should be approved.

Home repair and modernization program

One very important provision of S. 1800 is section 2 which would extend the FHA title I home repair and modernization program for 5 years to July 1, 1960. This program has, over the last 20 years, provided a means of financing home repair for over 18 million homeowners. In 1954, over 11⁄2 million borrowers used property improvement loans insured by FHA.

The title I program has had the effect of lowering and stabilizing financing charges on property-improvement loans and has stimulated interest of lending institutions in this type of loan.

Many families have found it necessary to expand their living quarters because of an increase in the size of their families or for other reasons. Others have used the program to prevent deterioration of their property.

The title I program is a necessary adjunct to the urban renewal program for neighborhood conservation and improvement provided for in the Housing Act of 1954.

Lumber and building material dealers have a vital interest in the title I program. The repair and modernization business is a major source of revenue to dealers which would not be available without adequate financing of major improvements.

We, therefore, urge the continuation of this program.

In your consideration of the continuation of the title I program, we suggest that thought be given to certain amendments which, in our opinion, would improve the program.

The President's Advisory Committee on Government Housing Policies and Programs recommended that "Title I of the National Housing Act should be amended to permit the insurance of class 1 (a) loans to finance the modernization and repair of existing structures up to a maximum amount of $3,000 and up to a maximum term of 5 years and 32 days."

The basis for this recommendation was that the present statutory limitation of $2,500 is not sufficient in terms of today's prices to finance home modernization operations while the present 3-year maximum term requires a debt service on larger loans that is beyond the ability of many families to carry.

Last year the Congress amended the law to make title I available to new house owners only after a 6 months occupancy. We believe that your committee might find it advisable to reexamine this provision to determine (1) whether it accomplishes the purpose for which it was intended, and (2) whether it is unnecessarily discriminatory against new homeowners who, by reason of this restriction, are forced to finance home improvements through other more costly channels.

This program has been in effect for 20 years and has become an accepted method of financing home repairs, as much as the mortgage insurance and guaranty programs of FHA and VA are now accepted by most lenders. We believe that it would provide more stability to the program and to home modernization if the title I program were made permanent instead of a periodical renewal of the program by legislation.

We do not want to be misunderstood in making these recommendations. Of primary importance is the extension of the title I program. Our suggestions for amendments would however, we believe, improve the program.

Public housing

In the past, an authorization for public housing has been on the statute books and the issue of the number of units to be approved has risen each year under appropriation bills for the Public Housing Administration.

Because the authorization existed, we are confident that many Senators and Representatives supported the appropriations for a limited number of publichousing units only because they felt there was a moral obligation of the Government to provide such funds.

Your committee, however, has a much greater problem to consider in connection with S. 1800. It is no longer a question of a moral obligation to provide funds for an authorized program. You, as a legislative committee, must decide whether or not additional authorizations should be granted to continue this program. Without such authorizations the program ends.

A thorough study of the public housing program will, we are confident, convince your committee that a continuation of the program cannot be justified. Such a study will reveal that public housing is not serving the purpose for which it was intended; that it is more costly than anticipated by Congress; and that it is political housing.

Without reiterating the arguments against public housing made in the past, we want to emphasize that your committee has a much greater responsibility than Appropriations Committees have had in the past. You must decide whether socialistic housing is to remain part of our Government policy or whether the program is to be terminated as an unsuccessful experiment.

This association and its members urge your committee to permit the publichousing program to terminate.

Military housing

Senator Capehart's bill, S. 1501, would create a substitute for the present Wherry Act housing program for servicemen.

We agree that adequate housing for military personnel is an important morale factor and is an added incentive to make the military service a career. We question, however, the method of providing this housing as proposed in S. 1501.

To require FHA to insure the mortgages on homes declared to be necessary by a branch of the military service without giving FHA any discretion or authority to make an independent determination as to the impact of such housing on other housing in the community; make an inspection of the property, and provide other functions necessary to protect the Agency and the Government is, we believe, unsound.

It also strikes us as being unnecessary for one agency of the Government to insure mortgages which another branch of the Government will assume, following construction of the housing.

In any legislative program for military housing such housing should be limited to those installations which, insofar as it can be predetermined, are permanent installations.

Senator SPARKMAN. The committee will stand in recess until 10 o'clock tomorrow morning.

(Whereupon, at 12:10 p. m., the subcommittee recessed until 10 a. m., the following day, Wednesday, May 18, 1955.)

and home-financing institutions of the country, following the broad pattern previously established with the Federal Reserve System as the central banking system for commercial banking and the Federal Land Bank System as the central banking system for farm-mortgage credit.

The legislation followed the generally accepted principle that where Government agencies are created to supervise in the public interest the operation of privately owned business corporations, such supervision should be exercised by nonpartisan boards or commissions, the members of which are appointed for specific and overlapping terms. Only in this fashion is there provided a continuity of policy so essential to the operation of the institutions under supervision. This principle is well demonstrated in the case of such bodies as the Federal Reserve Board, the Interstate Commerce Commission, the Federal Communications Commission, the Federal Trade Commission, and others.

Insofar as the grouping of related governmental operations is concerned, it may be pointed out that the Home Loan Bank Board, in addition to its original function, has since been charged with the further responsibility of supervising the Federal Savings and Loan System and of operating the Federal Savings and Loan Insurance Corporation. In the administration of its duties in these three areas, the operations of the Home Loan Bank Board are conducted without expense to the Government, all of its costs being apportioned to and paid by the institutions it supervises.

The institutions that are supervised and that pay the costs of operation of the Federal Home Loan Bank System, of the Federal Savings and Loan System, and of the Federal Savings and Loan Insurance Corporation, raised no objection when, as a wartime emergency measure, in 1942, a Presidential directive placed the Home Loan Bank Board under the supervision of a single administrator, along with certain other unrelated activities of Government-reliance being had on the statute which provided that such directive would expire with the termination of the war emergency. Nevertheless, under another statute, this consolidation was made permanent in 1947.

The Federal Home Loan Bank System is now owned entirely by its member institutions. There are no Federal funds in its capital structure and no appropriation of Federal funds is made for its operation. The Board exercises administrative, legislative, and judicial powers and supervises a three-phase financial operation. There is no community of interest or advantage served by placing it under the supervision of an administrator--and indeed, the continuance of such a program does injustice to a basic philosophy of governmental supervision of private business operations.

The independence of the Home Loan Bank Board was recommended both by the Hoover task force and by the Hoover Commission report itself. It is endorsed by every organization of savings and loan associations that I know of and according to the American Banker is endorsed by the American Bankers Association. The language of this measure which was worked out by many elements of the savings and loan business is very simple. The Board is simply restored to its original independent status and the $66 million of Treasury funds are retired and replaced by an investment by the 11 Federal home-loan banks. The investment by the banks requires only 6 percent of the Federal home-loan banks' assets, but even so the committee might want to consider laying aside for the time being the proposal to reduce the minimum required stockholdings of member associations in Federal home-loan banks.

The second amendment we are offering is one which would permit Federal associations with reserves, surplus and undivided profits equal to at least 5 percent of withdrawable accounts to invest up to 5 percent of their withdrawable accounts in the development of homesites and in the assistance of urban renewal projects.

The amendment would assist the national housing program in two vitally important ways. First, by assisting small home builders to overcome the serious problem of land acquisition and secondly by providing urgently needed funds for housing in urban renewal areas.

The cost of raw land and site development has climbed steadily to the point where small home builders are unable to finance further operations. Unless small home builders are assisted in acquiring suitable land there will either be a growing concentration of home building among a few very large builders, or the small home builder will go far out out into the country to build in areas where sewerage, streets, and water are not required-and this would be a step backwards. If Federal associations can acquire the land, develop it and

install the necessary facilities for the small builder, the project will be well planned, adequately developed and the economies of large operation will be passed on to the purchaser. FHA Commissioner Mason, in recent speeches, has referred to land as a "number one housing problem;" we believe this amendment is one effective answer to the problem. It has the enthusiastic support of many small home builders.

At least nine States have enacted specific legislation permitting this type of investment by State savings and loan associations. The results have proven very successful. This amendment provides ample safeguards for such investment as the money loaned would be backed by a mandatory 100 percent reserve. Fur ther, the amount that could be so invested is only a small portion of the association's savings.

The second purpose of the amendment is to permit Federal associations to participate in the urban renewal program. Although urban renewal and urban redevelopment are key parts of our national housing program, Administrator Cole and all others concerned have admitted that their number one obstacle is lack of adequate private financing. In fact, at this committee's recent round table session, both Administrator Cole and James Follin, head of the Urban Renewal Administration, stated quite flatly that they just can't find any private money available for rebuilding slum neighborhoods. Federal savings and loan associations are uniquely suited to provide a portion of the funds necessary to rebuild declining neighborhoods. Several associations have specific tracts in mind and need only the enactment of this amendment to go ahead with their projects. Inasmuch as the total amount invested under both phases of the amendment may not exceed 5 percent of withdrawable accounts and must be less than the total reserves, there could be no weakening of the association's strength nor any appreciable change in the association's overall operating function.

Mr. Chairman, here is a chance to solve at least partially, two tough problems, land acquisition for small builders, and private financing for urban redevelopment, and I certainly hope your committee will adopt the amendment.

Our third recommended amendment would permit Federal associations to purchase certain restricted securities as approved by the Home Loan Bank Board. The purpose of this amendment is to permit associations in areas where the home mortgage market is limited to continue to accept savings from the public and to invest these savings in securities other than Government bonds, such securities to be approved by the Home Loan Bank Board. Mutual savings banks have been successfully investing in such securities for many years.

In this connection, just last Thursday a representative of the American Municipal Association appeared before this committee and pointed out the great difficulty that most cities, particularly the smaller ones, are experiencing in financing local improvements such as sewerage, roads, etc. It is anticipated that municipal securities would be included on the approved list.

In closing, Mr. Chairman, let me assure this committee that the savings and loan associations are continuing and accelerating our part in financing home ownership in America. As the largest source of home financing credit, we take pride in the fact that the tremendous activity in home building of the past year is now credited by many economists with preventing a national recession. We feel our contributions will be further improved if this committee restores the Home Loan Bank Board to its independent status and grants authority for our associations to assist the small builder to overcome the severe financial difficulties of acquiring and developing homesites.

ATTACHMENT TO STATEMENT BY HENRY A. BUBB

PROPOSED AMENDMENTS SUBMITTED FOR S. 1800

I. Add at the end of Section 14 of S. 1800 the following new subsection : "(5) Renumber Section 17 to read Section 17 (a).

"(6) Add at the end of Section 17 a new subsection (b) as follows: "(b) The Home Loan Bank Board which was, pursuant to Reorganization Plan Numbered 3 of 1947, established and made a constituent agency of the Housing and Home Finance Agency shall, from the effective date of the Housing Amendments Act of 1955, cease to be such a constituent agency and shall be an independent agency (including the Federal Savings and Loan Insurance Corporation) in the executive branch of the Government: Provided, That the functions vested in the Chairman of said Board under clause (2) of the last sentence of subsection (b) of section 2 of said reorganization plan are hereby transferred to said Board. Notwithstanding any other provision of law, said

Board, the Chairman thereof except as herein otherwise provided, and the Federal Savings and Loan Insurance Corporation, respectively, shall have and may exercise all functions which they respectively had or could exercise, immediately prior to the effective date of the Housing Amendments Act of 1955 or immediately prior to the effective date of section 101 of the Independent Offices Appropriation Act, 1955. Said Board shall annually make a report of its operations (including those of the Federal Savings and Loan Insurance Corporation) to Congress as soon as practicable after the first day of January in each year. The name of the Home Loan Bank Board is hereby changed to "Federal Home Loan Bank Board."'"

II. Amend Section 16 of S. 1800 to read as follows:

"SEC. 16. The National Housing Act, as amended, is hereby amended"(1) by amending subsection (b) of Section 402 to read as follows:

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(b) (1) The capital stock of the Corporation shall be divided into nonvoting shares of a par value of $100 each and shall consist of the aggregate amount of stock held by Federal home loan banks, as hereinafter provided. The Corporation shall issue a certificate to each stockholder of record, evidencing that such stockholder is the owner of stock of the Corporation in the amount shown on the books of said Corporation. No stock of the Corporation may be assigned or transferred without the prior approval of the Corporation. The Federal home loan banks shall subscribe and pay for such stock as herein set forth Provided, That the Home Loan Bank Board shall have power to establish such procedures as in its judgment are equitable in connection with such subscription and payment and in connection with the other provisions of this subsection.

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"(2) The original stock subscription for each Federal home loan bank shall be in amount equal to 20 per centum of the outstanding capital stock of such Bank on the effective date of this amendment. The Home Loan Bank Board may from time to time adjust the amount of stock of the Corporation held by each Federal home loan bank so as to require such additional subscriptions as may be necessary to increase such stock by such percentage as may be determined by said Board of the excess of the capital stock of such bank over the capital stock of such bank on the effective date of this amendment. Such percentage may from time to time be increased or decreased by said Board, but shall be uniform for all of the Federal home loan banks and shall not exceed 10 per centum of such excess. Said Board, if it finds that the amount of stock of the Corporation held by any Federal home loan bank is in excess of the amount currently required pursuant to this subsection, may in its discretion permit or require the surrender of the excess, or such part thereof as may be specified by said Board, and upon such surrender the Corporation shall pay to such bank the value of the stock so surrendered, as determined by said Board: Provided, That no surrender which would reduce the stock of the Corporation held by any such bank below the amount of such bank's initial subscription thereto shall be permitted or required. Where any amount of the stock of the Corporation calculated under any of the foregoing provisions of this subsection would not be a multiple of $100, such amount shall be the next highest multiple of $100.

(3) The Corporation shall declare and pay annually, out of its net income for each year, to stockholders of record as of a record date fixed by said Corporation, noncumulative dividends upon its stock at such rates as the Corporation shall determine: Provided, That no such dividend shall exceed in the aggregate 50 per centum of the premium income of the Corporation for the preceding twelve months' period but such dividend shall, to the extent that funds are available therefor, be declared at the rate at least one-half per centum greater than the average cost of money to the Federal home loan banks upon obligations issued by them pursuant to section 11 of the Federal Home Loan Bank Act, as amended, during said twelve months or if none were issued during such period then the average cost of money thereon during the twelve months' period ending on the last date on which such obligations were so issued'.

"(2) by amending subsection (h) of section 402 to read as follows: '(h) The Federal Savings and Loan Insurance Corporation shall, on or before sixty days after the effective date of this Act, retire at par all outstanding stock held by the Secretary of the Treasury and shall pay to the Secretary of the Treasury a return on the average amount of capital stock outstanding during the fiscal year 1955 at a rate determined by the Secretary of the Treasury, taking into consideration the current rate on outstanding marketable obligations of the United States as of the last day of the sixth month of said fiscal year, but pro