long. I would be happy to have an opportunity to read it and then to go into any questions you may have.

I have with me the Commissioner of the Federal Housing Administration, Mr. Richards, and the Commissioner of the Public Housing Administration, Mr. Egan, who will be available and who will have statements also.

The CHAIRMAN. Mr. Foley, I neglected to observe, for the record, that we set up last year a joint committee on housing, of which our esteemed colleague, Mr. Gamble, was the chairman, and it was the hope of this committee that that committee, because of its hearings held during the summer and fall would expedite consideration of this matter by reason of their studies and there are available to this committee the two reports made by the Joint Housing Committee, which I think would be helpful in understanding these problems. I suggest to the members of the committee that they study those reports very carefully because there is a world of worth while information in both of them. All right, Mr. Foley.

Mr. GAMBLE. Also, Mr. Chairman, there are also 325 pages of statistics that I recommend very heartily that every member of this committee peruse page by page and line by line. I trust that something new will be brought out by these hearings on housing.

STATEMENT OF RAYMOND M. FOLEY, HOUSING AND HOME

FINANCE ADMINISTRATOR

Mr. FOLEY. Mr. Chairman and members of the committee, I am. pleased to come before your committee to present my views with respect to S. 866. I should like to indicate, first of all, that the bill is consistent with my philosophy with respect to the provision of housing which I have frequently expressed to your committee and to other committees of the Congress, and I am, therefore, appearing in general support of the bill. I think it would be of benefit to all the varied groups who have an interest in housing if there were enacted by this Congress legislation such as this which treats housing as the single broad problem which it is, rather than as a wide variety of matters which otherwise may appear to be unrelated.

The problem of housing is an over-all problem. It is national in scope. It is directly related to the general welfare of the entire people. A supply of adequate housing, sufficient to meet the needs of all families, is essential to a sound and stable democracy, for the character of the home is a large factor in determining the character of family life, the conditions under which children grow up and assume the obligations of citizenship, and the general attitudes of people toward their community and their Government.

We have a serious cumulative shortage of housing. We have not been able to adopt and adhere to a policy of replacing housing that should no longer be used. The production costs of new housing are too great for the pocketbooks of too large a proportion of the American people. We have slums and blighted areas in a great many of our urban communities. We have many families who must live in slums and other inadequate housing because their incomes are not sufficient to permit them to pay an economic rent for decent shelter, new or old.

From the standpoint of the general economy of the Nation, housing construction can well be in the neighborhood of $7 billion annually, and should be one of the major sustaining elements of national prosperity.

Unfortunately, however, the home-building industry has been one of the most violently fluctuating industries. The average annual number of dwelling units started during the 10-year period 1920 to 1929 was 703,000, at an average annual cost in excess of $3 billion. Even during this period, the volume of residential construction fluctuated from 247,000 in 1920, to a peak of 937,000 in 1925 and back to 509,000 in 1929. During the 10-year period, 1930 to 1939, the average number dropped to 203,000 at an average annual cost of slightly in excess of $1 billion. Over the 20-year period, the extremes were represented by the peak of 937,000 units, costing slightly over 42 billion dollars, in 1925, and the low of 93,000 units, costing slightly under $300 million in 1933.

This extreme instability in residential construction is further illustrated by the fluctuations in construction employment. During the 10-year period, 1930 to 1939, the variation in employment in on-site residential construction varied from a high of 668,000 to a low of 150,000-a decline of more than 79 percent. On the other hand, the variation in total nonagricultural employment was much less extreme, varying from a high of about 31 million to a low of about 23 milliona decline of about 25 percent.

The task which we face in housing is a difficult one. It cannot be solved simply by a 2- or 3-year period of high-construction volume. But these hard facts serve only to emphasize the imperative necessity for taking adequate measures to start now to meet the problem. We must find the means of aiding the home-building industry to achieve and sustain a higher annual volume of new housing construction. We must find the means of assisting the industry in getting a better distribution of its product in the various price and rental classes. We must find the means of effectively aiding the efforts of the home-building industry to reduce housing costs and to provide adequate housing for groups far lower in the income scale than has been achieved in the past. We must find the means of replacing our inadequate housing and of eliminating our slums and blighted areas. We must take adequate provision for decent housing for our low-income families. I believe we should recognize that even with maximum effort and substantial success, progress toward these objectives will be a gradual and continuing process, and we cannot expect some sort of a revolution that will suddenly make it possible for private enterprise to satisfy all of the Nation's requirements for decent housing at all income levels.

This is the background against which I should like to discuss the several titles of the pending bill.

First, the declaration of national housing policy. In my judgment, the establishment by the Congress of a well-conceived, comprehensive national housing policy represents a most desirable course of action, and an essential first step. From time to time, the Congress has enacted legislation to deal with one phase or another of the housing problem. The result has been that, while there already exists a great deal of important housing legislation, there is no single, clearcut declaration by the Congress of a housing policy.

The bill would establish as the ultimate housing objective, the realization, as soon as feasible, of the goal of a decent home and a suitable living environment for every American family. The policy to be followed in seeking the attainment of that desirable objective is based on the premise that the provision of housing in the United States has been and will continue to be primarily and predominantly the function of private investment, private construction, and private ownership and management, and that governmental aids shall be designed to stimulate and supplement-not to impede or supplantprivate enterprise operations.

The bill, therefore, declares it to be the policy of the Federal Government to encourage and assist, by all reasonable means, the expansion of private housing enterprise so that it can more broadly serve the housing needs of our families, with the use of public funds and subsidies to housing operations limited to special problems which otherwise cannot now be overcome, and to those needs which cannot be met through the use of the existing supply of housing or through new private construction. Further, the policy declaration makes it clear that, while there are many ways in which the Federal Government can, and should, render assistance, first responsibility and iniative for meeting the problem rests with private enterprise and the local communities.

The policy declaration contained in the pending bill seems to me to be thoroughly sound. It is entirely consistent with my own convictions as to the best fundamental approach to the problem. As you know, those convicions have grown out of nearly 14 years of experience in housing, mainly in the administration of the aids extended to private housing enterprise through the operations of the Federal Housing Administration.

Secondly, title I, Federal Housing Administration, title VI, and transitional period amendments. My comments on the portions of the bill dealing with title VI of the National Housing Act will be very brief, since I have already testified at length before your committee in support of legislation to extend title VI, on a revised and transitional basis, until March 31 of next year, and to provide an additional $2 billion of mortgage insurance authorization for this extended period.

There are really no substantial differences in the title VI amendments contained in the bill now before your committee and the title VI bill previously reported from your committee and passed by the House.

In lieu of the provisions included in the House bill to make eligible for insurance, under section 609 of the National Housing Act, loans to finance the manufacture of housing equipment used on the site in the construction of housing, there have been included in section 104, of the pending bill, provisions to authorize loans by the Reconstruction Finance Corporation for somewhat similar purposes. I believe that this course of action is preferable, in view of the Reconstruction Finance Corporation's extensive experience with this type of business or commercial loans.

The pending bill also contains, in the amendment to section 610 of the National Housing Act, additional provisions which would make eligible for Federal Housing Administration insurance, mortgages executed in connection with the sale by the Government of any of the

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village properties under the jurisdiction of the Tennessee Valley Authority. We have no objection to this provision.

Concurrently with the extension to March 31, 1949, of title VI of the National Housing Act, on a revised and transitional basis, these amendments are designed to make in title II of the National Housing Act the changes which appear necessary to afford reasonable assurance that it will operate with increasing effectiveness. This should make possible an orderly transition from the very liberal emergency type of assistance provided under title VI to the permanent type of Federal Housing Administration insurance operations. They are also designed to make a number of perfecting changes in the present provisions of title II which the operating experience of the Federal Housing Administration has shown to be necessary and desirable.

Many of these amendments are rather technical and, to conserve your time, we have provided a separate statement as to what each amendment does. Moreover, Mr. Richards, the Federal Housing Commissioner, is here and I believe it is preferable that he comment in detail on the amendments to the Federal Housing Administration's programs. I am in general agreement with Mr. Richards' statement and I am sure it will be helpful to the members of your committee. There is one matter, however, which I would call to your attention. The bill changes the present limitation of $3,000 on Federal Housing Administration, title I, class 3 loans to $4,500. It has been my opinion, which is shared by Commissioner Richards, that a $1,500 or 50 percent increase in the maximum principal amount of these title I, class 3, loans is not necessary and that a $1,000 or 1% increase to $4,000 would represent a preferable maximum limit. Mortgages of larger principal amounts should, I think, be subject to Federal Housing Administration's normal standards, appraisals, and inspections during construction, both for the protection of the Federal Housing Administration and the purchaser.

Now, as to title II-Secondary market for GI home loans and Federal Housing Administration-insured mortgages. The purpose of this title of the bill is to provide for a Government-sponsored secondary market for residential mortgage loans guaranteed under the Servicemen's Readjustment Act, or insured under titles II or VI of the National Housing Act. Under the bill, the Federal Housing Administration, title I, class 3, loans are not eligible for purchase since they are not subject to the Federal Housing Administration's title II standards, appraisals, or Federal Housing Administration inspection during construction. Your committee may recall that in the past when Federal Housing Administration, title I, class 3, loans were purchased by the Government, it was required as a condition to such sale that they be converted to Federal Housing Administration title II loans.

I believe that assurance of a secondary market for home-mortgage loans is needed to aid the home-building industry in continuing the present high volume of production. Certainly it is necessary that the Government do everything reasonably possible to assist in continuing and sustaining the momentum which has been achieved by the industry. I understand that your committee recently provided for a continuation of the purchasing activities of the Federal National Mortgage Association in the Reconstruction Finance Corporation, with respect to home mortgages insured under titles II and VI of

the National Housing Act. Such action was, in my judgment, very desirable, since those activities now represent an important aid in the current home-financing scene. Presumably, this will mean that there would be no gap in these operations until such time as the Congress has an opportunity to decide that the question presented in the pending bill as to the necessity for a Government-sponsored secondary market for home-mortgage loans insured by the Federal Housing Administration or guaranteed under the GI Act.

As I have indicated, I believe that provision for a Governmentsponsored secondary market for both Federal Housing Administration-insured and GI-guaranteed home loans is desirable and necessary, but I am convinced that this should only be done on a carefully restricted basis.

The essential features of the secondary market provisions of this bill are, in my judgment, those contained in section 205 which relate to the types of loans eligible for purchase, and to the conditions under which they may be purchased.

Purchases would be restricted to areas where a scarcity of private secondary credit develops to the extent of threatening the continued production of sale or rental housing, and where such purchases would not reasonably be expected to contribute to substantial increases in the costs and prices of housing. While these particular provisions may make the administration of this operation somewhat more difficult, it seems to me that they represent essential and desirable safeguards against increasing inflationary pressures with resulting increases in housing costs.

No loan would be eligible for purchase in the secondary market operation authorized by the bill

1. Unless it was made after the effective date of the act. This assures that the secondary market will assist lenders who continue to put their funds in home mortgages to finance additional home construction;

2. If the original principal obligation of the loan exceeded $7,000 for each family residence covered by the mortgage, although provision is made for increasing this limitation up to $10,000 if at any time in any area it is not feasible to construct dwellings which meet sound standards of construction and design within the limitations of a lower maximum amount. This should tend to encourage lenders to make funds more readily available to finance moderately priced homes;

3. Unless no private market is willing to purchase the loan; 4. Unless the loan is purchased from a mortgagee qualified by experience and facilities to service it;

5. Unless supporting data are submitted to show the reasonable ability of the borrower to meet his payments and the physical soundness of the property covered by the loan.

It seems to me that these provisions are desirable and are necessary to assure a sound secondary market operation. I believe they would do much to overcome some of the difficulties which resulted, prior to its discontinuance last year, of the Government-sponsored market facilities for loans guaranteed under the GI Act.

Attention is also directed to the fact that this title contemplates that reasonable construction standards would be established as a condition to the purchase of some loans guaranteed under the GI Act.