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Senator BUCK. Mr. Ferguson, we will have to postpone the hearings for a few minutes while we go to vote.

Mr. FERGUSON. That is fine.

(Thereupon a short recess was taken.)

Senator BUCK. Well, we will resume, Mr. Ferguson.

Mr. FERGUSON. I was just starting to discuss section 502 of the bill, which provides for the conversion of Federal savings and loan associations into State associations.

This subject is also covered by Senate bill No. 913, which we understand is before this committee. Our objection to both of these bills is that they require approval of the Home Loan Bank Administration or the Home Loan Bank Board before a Federal savings and loan association can be converted into a State association. This is not consistent with State law on this subject, and I am informed is contrary to what Federal officials represented to the States in obtaining State legislation to authorize State associations to convert to Federal.

My information is that it was understood that it was to be a twoway street, that they would be able to convert from State to Federal and Federal to State in this same procedure.

I am incorporating in this statement à proposal which we think will be fair to the associations wanting to convert from Federal institutions to State institutions and which will, at the same time, protect the Federal Government in its investment in such institutions and also will amply protect the shareholders in such institutions. The language of this proposal has been widely approved by State supervising officers as well as the industry generally. This proposal is as follows:

SEC., subsection (i) of section 5 of the Home Owners' Loan Act of 1933, as amended, is hereby amended by striking out the period at the end thereof and inserting a colon and the addition of the following: "Provided, however, That said conversion shall not be in contravention of the State law. Any association chartered as a Federal savings and loan association may convert itself into a savings and loan, building and loan, or homestead association, or a cooperative bank, incorporated under the laws of the State, district, or Territory in which the principal office of such association is located (hereinafter referred to as the State institution), upon the vote, cast at a legal meeting specified by the law of such State, district, or Territory as required for such a conversion, but in no event less than 51 percent of all the votes cast at such meeting, voting in person or by proxy: Provided further, That legal titles are protected by such conversion or provided that conveyances of legal titles are made. If none of the outstanding shares of the converting Federal association are held by the Secretary of the Treasury or the Home Owners' Loan Corporation, and if such conversion is to a State institution, which is mutual in character and of a type which has been insured by the Federal Savings and Loan Insurance Corporation, no approval of such conversion by the Federal Home Loan Bank Board or the Federal Home Loan Bank Administration shall be required and such converted institution shall continue to be an insured institution and bound under all of the agreements contained in the original application for insurance of accounts, and by such conversion shall accept and be bound by all agreements required by section 403 of title IV of the National Housing Act and such insured institution shall upon such conversion and thereafter be authorized to issue securities in the form theretofore approved by Federal Savings and Loan Insurance Corporation for issuance by similar insured institutions in such State, district, or Territory. Such conversion shall be effective upon approval by the duly constituted authorities of the State, district, or Territory which have supervision over such institutions where such institution is located, and the filing of a certified copy of the resolution authorizing such conversion and the approval of such State, district, or Territory authority with the Federal Home Loan Bank Administration or the Federal Home Loan Bank Board.

In addition to the foregoing provision for conversion upon a vote of the members only any association chartered as a Federal savings and loan association, including any having outstanding shares held by the Secretary of the Treasury or the Home Owners' Loan Corporation, may convert itself into a State institution upon an equitable basis, subject to approval, by regulations or otherwise, by the Federal Home Loan Bank Board or the Federal Home Loan Bank Administration and by the Federal Savings and Loan Insurance Corporation: Provided, That if the insurance of accounts is terminated in connection with such conversion, the notice and other action shall be taken as provided by law and regulations for the termination of insurance of accounts.

Now, this provision is incorporated in a bill introduced in the House as H. R. 2799.

We do not think that either section 506 of the bill, or S. 804, sufficiently cover the subject they deal with. Section 506 deals only with reducing the amount of dividends payable by the Federal Savings and Loan Insurance Corporation to the Home Owners' Loan Corporation on the capital stock of the Insurance Corporation which is held by the Home Owners' Loan Corporation on behalf of the Government. The act provided that the capital stock of the Federal Savings and Loan Insurance Corporation, amounting to $100,000,000, should be put up by the Home Owners' Loan Corporation in the form of bonds on which the Home Owners' Loan Corporation was paying 3 percent. Now, it appeared as the price of bonds went down these bonds were sold and converted and the Home Owners Loan Corporation is now paying 12 percent on its money.

This bill provided that the difference between the rates should be adjusted to equal the average rate paid on the bonds of the Home Owners Loan Corporation.

We have no objection to this provision, but there was contained in the 1946 housing bill, a provision in section 306 by which the insurance premium paid by members of the Federal Savings and Loan Insurance Corporation for the insurance of their shares; that is, savings and loan association by the Insurance Corporation, was reduced from oneeighth of 1 percent to one-twelfth of 1 percent of insured accounts and creditor obligations.

The bill provided that that rate is to be reduced from one-eighth to one-twelfth. That provision reducing the premium rate is not in the 1947 housing bill.

However, Senate 804 undertakes to combine these two provisions in one bill which is similar to a bill which passed Congress at its last session and which was vetoed by the President.

The President vetoed this act on the ground that the entire capital of the Federal Savings and Loan Insurance Corporation amounting to $100,000,000 was supplied by the Federal Government and that this capital, in his judgment, should be returned to the Government at as early a date as possible. Accordingly, he felt that the present premium rate should be maintained until some arrangement was made to retire the Government capital.

In view of this fact, we feel that a bill providing for the reduction of this premium rate should also set up a plan to retire the Government's stock in accordance with the President's suggestion. I am submitting herewith our proposal which we believe would not only serve to reduce the insurance premium but will also retire the Government capital. Under this plan $20,000,000 of the capital would be

retired promptly upon the adoption of the plan and the remaining $80,000,000 would be retired within a few years. The estimate was about six or seven, possibly. This plan is substantially identical with the plan contained in bills introduced in the last Congress to retire the Government capital invested in the Federal Deposit and Insurance Corporation. This plan would leave the Federal Savings and Loan Insurance Corporation with a capital of $150,000,000, which is 3 percent of the insured amounts in insured accounts. The proposal is as follows:

SECTION

Subsection (b) of section 402 of the National Housing Act, is amended by the addition of the following:

"After the effective date of this amendment the Corporation is authorized and directed to pay off and retire its capital stock in units of $1,000, from time to time, from its assets which are in excess of $150,000,000. Such retirement and payment shall be to Home Owners' Loan Corporation or its successor and for the full amount paid for such stock less any amount paid as dividends thereon. Such payments shall be continued, from time to time, as such funds are available from assets in excess of $150,000,000 until the entire capital stock is retired and the Corporation shall continue to operate with its insurance reserve, undivided profits, and other funds. Whenever, in the judgment of the Board of Trustees of the Corporation, funds are required for insurance purposes, the Secretary of the Treasury is authorized and directed to purchase obligations of the Corporation in an amount equal to the amount of capital stock of the Corporation previously retired, in accordance with the provisions of this paragraph in addition to the amounts of such obligations which he is otherwise authorized to purchase."

SECTION (a) Subsections (a) and (b) of section 404 of the National Housing Act, as amended (U. S. C., 1940 edition, title 12, sec. 1727 (a) and (b)), are amended by striking out the word "one-eighth" wherever it appears therein and inserting in lieu thereof the word "one-twelfth."

(b) Subsection (c) of section 404 of the National Housing Act, as amended (U. S. C., 1940 edition, title 12, sec. 1727 (c)), is amended to read as follows: "(c) If an insured institution has paid a premium at a rate in excess of onetwelfth of 1 per centum of the total amount of the accounts of its insured members and its creditor obligations for any period of time after June 30, 1946, it shall receive a credit upon its future premiums in an amount equal to the excess premium so paid for the period beyond such date."

There is one further section in this bill that I should like briefly to comment on. This is title 12, dealing with the dispostion of permament federally owned houses. In section 1201 (b) the Federal Public Housing Authority is authorized to sell permanent war housing and other federally owned housing to a local public agency

for a consideration which consists of payment to the authority during the useful life of the project (as defined in the contract of sale) of the net income from the project

which, of course, means that it is giving the property to the public housing agency.

Senator BUCK. Because there is no profit?

Mr. FERGUSON. That is right. There is no profit.

It should be recalled that this war housing was built under the so-called Lanham Act, at a cost just under $2,000,000,000, which provided that no housing constructed under that act should be turned over to a public housing agency but should be sold to private interests within 2 years after the termination of the war. Notwithstanding the provisions of the Lanham Act, this bill undertakes to turn all of this housing over to public housing agencies without any real compensation whatsoever.

There has been some suggestion during these hearings about a further reduction of interest rates on private mortgage loans. I should like to say just a word on this subject in closing.

How would the further reduction of interest rates affect the country as a whole? There are some 60 or 70 million life-insurance policies outstanding throughout the country; there are 50,000,000 persons with savings accounts in savings banks and commercial banks amounting to more than $48,000,000,000 and there are 8,000,000 persons with shares in saving and loan associations amounting to about $8,000,000,000. These people are not rich people. They are thrifty hardworking middle-class people, who are the backbone of the country. What is going to be the effect of the reduction of interest rates upon the savings of these people?

The cost of life insurance, for instance, is definitely affected by the interest earned by the companies on mortgage loans, which constitute a substantial part of their portfolios. As a result of reduction of interest rates, the cost of life insurance to policyholders in this country has increased during the period 1930 to 1944 by about 17 percent. If the interest rates are reduced another 1 percent, this will add more than 7 percent additional to this cost. The net interest earned from investments by 100 insurance companies dropped from 5.1 to 3.1 percent between 1930 and 1944. Returns on savings have been reduced from 3 to 4 percent to 1 to 2 percent. These figures demonstrate that reduction in the interest rates which appears on the surface to reduce the cost of housing has the immediate effect of reducing the income of millions of thrifty hard-working people.

It is also claimed that the devices set up in this bill, particularly the longer amortization period and the reduced interest rates, will reduce the cost of the price of housing they apply to. I wonder if that is true; if it is as simple as that. I wonder if the plan set up by this bill will not actually increase the cost of housing. These extremely liberal terms will certainly bring thousands of new purchasers into the field who have not been there before, with the result that there will be many more people trying to buy houses with no increase in the supply of houses.

Furthermore, the extension of the term of amortization and the reduction of the down payment provided for in this bill vastly increases the borrower's purchasing power, because the extension of the time when he has to pay, and the lowering of the interest he has to pay, permits him to buy a higher-priced house with the same income. Thus he enters the competition for a much larger class of housing with a larger number of buyers in a market where there is a scarcity of houses such as we may expect for some time to come. The only possible result is an increase in the price of houses. That is all I want to say to the committee.

Senator BUCK (presiding). Thank you, Mr. Ferguson.

I have been informed that the other members of the committee are unlikely to be able to return to the committee meeting. They are on the floor, and I am going to suggest that we adjourn until tomorrow morning at 10:30 a. m., in the Banking and Currency Room, to resume these hearings.

(Thereupon, at 3: 40 p. m., an adjournment was taken until 10 a. m., 3:40 Friday, March 28, 1947.)

HOUSING

FRIDAY, MARCH 28, 1947

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The committee met, pursuant to recess, at 10:30 a. m., in room 301, Senate Office Building, Senator C. Douglass Buck, presiding.

Present: Senators Buck (presiding), Cain, Bricker, McCarthy, Taylor, Fulbright, and Robertson of Virginia.

Senator BUCK. The meeting will come to order.

I regret to announce that Senator Tobey, Senator Maybank and Senator Flanders cannot be here, because they are in conference with conferees of the House on the sugar control bill, which passed the Senate yesterday, which my friend, Mr. McCarthy, knows a little about.

We will go ahead with the hearings of this committee this morning. Mr. Edward R. Carr is the first witness, national president of the National Association of Home Builders.

STATEMENT OF EDWARD R. CARR, PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS, WASHINGTON, D. C.

Mr. CARR. My name is Edward R. Carr. I have been constructing homes in Washington since 1925. I am president of the National Association of Home Builders, an organization representing the home. builders who produce an estimated 80 percent of the Nation's houses in urban areas. The association is composed of approximately 100 local associations of home builders in every State.

Many of the general provisions of S. 866 were contained in two previous bills, the Wagner-Ellender bill and S. 1592. Our position against the two previous bills is very clear, as evidenced by our appearances before the committees of the Congress in the past. We have not deviated from that position.

The changes in the present bill have not in any way affected our opposition to it as an omnibus housing measure. We are against this bill. We have given many reasons for opposition to such omnibus legislation in previous testimony. We believe that its slum clearance. provisions, its plan to coordinate Government agencies, its "aids to private enterprise," and its public housing proposals should be broken into separate bills and each of these acted upon individually.

Our feeling in regard to Government participation in housing is clearly set forth in a statement of policies approved by the board of directors of our association on February 27 at our annual convention at Chicago. In order that you might understand our position I would