The Federal Housing Admir istration plan which followed in 1934 was devised along similar lines and incorporated the principle of insuring mortgage-lending institutions against loss if they made longterm, amortized mortgages at a time when very few lending institutions would lend any money at all on mortgages.

The CHAIRMAN. May I ask there have you any record of the number of homes that were actually saved to the owner where he was in difficulty with the mortgage?

Mr. FAHEY. Yes; all but 198,000 we took over. About 82 percent. The CHAIRMAN. Were saved?

Mr. FAHEY. I mean they are in such shape there is no risk, practically, on them today. They are paid down to a point where there is very little possibility of loss. Over 800,000 out of a million.

The CHAIRMAN. We boasted about it afterward. I think we said. it was nearly a million. This legislation came out of this committee. Mr. FAHEY. The operation actually saved more than that. The corporation had nearly two million applications for loans amounting to over six billion dollars. It accepted over half the applications and the taking over by HOLC of so many defaulted mortgages placed a large amount of money in the institutions and relieved the foreclosure pressure. The mortgage panic and the steady decline of real estate and home values was stopped.

The CHAIRMAN. That is right.

Mr. FAHEY. Actual relief went far beyond the 1,000,000 mortgages that were taken over.

HOLC made loans up to 80 percent of the appraised value of the properties it refinanced. The Federal Housing Administration's early plans were on approximately the same basis and later, as you know, in some instances, the amount of the mortgage which could be insured represented 90 percent of the appraised value of the property. The experience of both, as well as the private lending institutions, shows conclusively that people of moderate incomes can and do save in order to make substantial down payments when buying or building their homes and they meet their loan obligations regularly and dependably under anything like normal economic conditions. The records of the Home Owners' Loan Corporation and the Federal Housing Administration furnish conclusive evidence of this fact. The Home Owners' Loan Corporation made loans and advance amounting to approximately 3% billions of dollars.

When the Home Owners' Loan Act was passed at the height of our difficulties in 1933, the prediction was freely made in Congress and among the managers of mortgage-lending institutions throughout the country that the legislation would impose a loss of $500,000,000 to $1,000,000,000 on the Government. Because of the low principal and interest payments fixed under the amortization plan, borrowers were able to meet their obligations even under adverse conditions and particularly when the employment curve rose and they have done so faithfully. Instead of costing the taxpayers hundreds of million of dollars, the Corporation is now far ahead of its liquidation estimates and will wind up its affairs without the loss of a dollar to the Treasury unless the country suffers a very serious economic set-back.

In considering the matter of mutual home ownership, quite apart from the impressive record which small home owners have made for decades in saving for down payments to buy homes and meeting the

maturities on their mortgages it is, I think, worth recalling that we have had in this country some rather significant experiments in cooperatively financing the construction and acquisition of rental houses.

The Amalgamated Housing Corp. organized in New York in 1927, whose object is in the Van Cortlandt Park area, has been a conspicuous success. Amalgamated Dwellings, Inc., which was started in 1931, in a very difficult period, and is located on the lower East Side, has worked out splendidly. The first undertaking was sponsored and developed by the Amalgamated Clothing Workers of America. The equity money was raised among the garment workers who became the owners of the apartments and the loans were secured through the Amalgamated Bank of New York on the basis of the subscriptions of those who were to own the apartments.

The Amalgamated housing project cost over $4,000,000, over one million of which came from stock subscriptions. The mortgages were financed by a life insurance company and a savings bank. These mortgages have now been reduced to 65 percent of the original loans. The operation has made a most satisfactory showing.

Those who participated in the Amalgamated Dwellings project put up their own equity money and the financial results have been excellent. The latest undertaking-East River Cooperative Houseswill cost more than $5,000,000. The subscribers, working people, will provide an equity of at least 20 percent and the balance is being loaned on a 4 percent basis by a group of four mutual savings banks on a long-term, amortized mortgage.

The cost per room in these apartments in New York City is by no means low, but, nevertheless, workers whose income must necessarily be classed as "moderate" but who are thrifty and intelligent in the use of their income, are paying their own way and securing the kind of housing they want.

I refer to these facts only to suggest that your committee may well consider whether it is necessary or wise to go so far as insuring 95 percent loans for terms of 32 to 40 years for cooperative or other similar housing projects.

Whether it be in connection with mutual home ownership or any other type of privately built or privately financed housing, I think we should consider carefully the possibility of getting interest rates down to a level which may ultimately produce unsatisfactory results.

We can, easily establish unfairly low rates on home mortgages and loan too high a percentage of the appraised value of a property and if we are not foresighted in fixing home-mortgage policies, we may invite more defaults and foreclosures than we had from 1930 to 1936. Most of the money which is invested in home mortgages comes from the small savings of millions of our workers, placed in our savings institutions. For long years up to 1930, they received interest on their savings ranging from 3 to 4% and 5 percent. Today, it has been more than cut in half. Unless the home-mortgage lending institutions are able to increase present rates somewhat when we get into more normal times, I think low returns will discourage savings on the part of many people.

If home-mortgage rates generally are to be reduced, it means that the interest which can be paid to the small savers of this country will have to be cut still further. We have observed a growing discon

tent on the part of savers who are asking when they are going to get something better than 1%1⁄2 percent or 2 percent on their savings.

As everyone familiar with the subject knows, we have a greater accumulation of savings on the part of our people than has ever been known or imagined. A lot of it will be utilized in connection with the building of homes. In my opinion, it is most important to the protection of a sound economy in this country that we do everything reasonable to maintain and encourage the saving habits of the average American family. It is true that there are many people who would' save if they did not receive a cent of interest in return, but I am certain any investigation would disclose that those who save a few dollars at a time watch carefully the extent to which the savings balance is increased by the interest they receive. They think they are entitled to a return on their earned money in some reasonable relation to that expected by the well-to-do investor. I think they are right.

The CHAIRMAN. As usual, you have given us a very fine statement. Are there any questions?

Senator Buck. You think, Mr. Fahey, that the language as to some of the financial provisions in this S. 1592 is a little broad?

Mr. FAHEY. I think, as stated by the chairman in his talk on the subject on the floor of the Senate, that out of your hearings here you are likely to get many suggestions which you will wish to consider.

After all, housing is a many-sided problem. It is not at all simple. Not only in this country but elsewhere struggles to improve the situation have been going on for decades, and we are still far behind what ought to be accomplished. All that may be done soundly and safely should be pushed vigorously, in my judgment. I feel very strongly, however, that we cannot overlook some of the financial and some of the very human aspects of this problem. We can easily get into a situation where the average, everyday man who is paying for his own house out of his own savings begins to feel that we are discriminating in favor of those who are not inclined to exert themselves or save. The sacrifices hard-working people make to buy and keep their homes are remarkable. I could sit here for hours and read to you from the letters we have received from these families expressing their great satisfaction that they have been able to pay off their debt by Christmas or an anniversary, let us say. We get stories of what the boy of the family earned by carrying newspapers to help pay the debt and how much others of the family saved by cutting down on candy or the movies, and all that kind of thing.

Only a little while ago I remember receiving a letter from a blind couple telling with pride what they had been able to do in spite of the catastrophe they encountered in 1932 to pay off their debt to HOLC.

Enormous savings have been effected for people like these as a result of the purely financial developments of recent years. Before the advent of FHA and HOLC, over the country generally mortgage loans did not exceed 60 to 65 percent. There were institutions that were supposed to lend higher percentages, but few of them did. Practically no home borrowers paid less than 6 percent on a first mortgage, even in the areas where there was plenty of money. Many mortgage lending institutions had loan plans which the borrower could not understand and under which what he paid on a first mortgage amounted between 9 and 9%1⁄2 percent. Throughout the country, of

the million mortgages we took over, the vast majority of them had second mortgages, none at a rate less than 9 percent and some of them ran as bigh as 14 percent. There are some States that still have a legal first mortgage rate of 8 percent. I think there are some even 10 percent. There were numerous third mortgages also among the accounts we refinanced. All the thirds and nearly all the seconds were wiped out.

All that has been changed and the direct reduction first mortgage has become common throughout the country. Some of the States which used to declare that a long term amortized mortgage was a very dangerous thing have only recently changed their laws and have gone further than HOLC did. As I have pointed out, that first experiment by the United States Congress has had a very far-reaching effect. Of course, long-time amortized mortgages have been common in the older countries of the world for centuries.

In our purpose to improve housing in our country we should, in my opinion, do our utmost to help those who are so often referred to as the underprivileged, and those who cannot pay an economic rent. I think we should face the slum problem squarely and do the right thing about it. In the process of encouraging mutual home ownership and similar plans, however, I think we must be careful not to place some groups in an advantageous position as compared with the people who work and struggle and save to pay for their homes and we should not get the interest rates on home loans so low that the mortgage lending institutions cannot pay a decent return to savers.

There is another element of danger in that. You will remember that in the period after the First World War, when war workers and others had accumulated very substantial savings, a large part of what they saved was lost because they were tempted to go into this, that, and the other alleged security that would pay more than they got on their savings.

All you gentlemen have doubtless observed the widespread activity which has developed in recent months in low-cost stocks of various kinds, ranging from $1 to $10.

I think it would be most unfortunate if small savers in the years ahead of us, discouraged by the return they are receiving on savings, are prevailed upon to put their money into securities of an extremely doubtful character. A lot of things that are being sold at popular prices today will never pay a dividend.

The CHAIRMAN. We had trouble with what I think are called certificate mortgages, where you are sure of your money-guaranteed mortgages.

Mr. FAHEY. They blew up around 1930 to 1932 with enormous losses to the people who bought them.

The CHAIRMAN. We will never have them again. I think we have protected ourselves against that.

Mr. FAHEY. That is right.

The CHAIRMAN. Thank you very much, Mr. Fahey.

Mr. FAHEY. If you think I can be of any use to this committee, I will be glad to come back later and talk about some of the other things. The CHAIRMAN. You have helped us a lot today, and we will probably have to call you back again.

Mr. FAHEY. In the Federal Home Loan Bank Administration we have had quite an extraordinary experience. In some directions no

other institution ever had to deal with corresponding problems. So far as it may yield anything in the way of facts which may be helpful in shaping legislation, of course, it is our duty to be completely at your disposal.

The CHAIRMAN. We will take a recess now until 2:15.

(Whereupon, at 12:35 p. m., a recess was taken until 2:15 p. m., of the same day.)

AFTERNOON SESSION

(The committee resumed at 2:15 p. m., upon the expiration of the recess.)

The CHAIRMAN. The committee will come to order. We have on our list to be heard this afternoon Dr. Sydney Maslen, representing the American Association of Social Workers, and Mr. Clark Mock, representing the Family Welfare Association of America. Which of you two gentlemen would like to go on first?

Mr. MASLEN. I understand, Mr. Chairman, that I am down first on your list, but Mr. Mock wishes to catch a train as soon as possible, and he tells me he will be quite brief, so I would be very glad if you would hear him first.

The CHAIRMAN. Very well. Mr. Mock, you will come forward.

STATEMENT OF CLARK L. MOCK, REPRESENTING THE FAMILY WELFARE ASSOCIATION OF AMERICA, BALTIMORE, MD.

Mr. Mock. Mr. Chairman and gentlemen of the committee, the Family Welfare Association of America, with headquarters at 122 East Twenty-second Street, New York City, is an association of public and private family welfare agencies throughout the country.

This association has been in existence a long time, and its members are largely, of course, in the urban areas. The association has asked me to make a statement to you, which is brief and which I will read, and then I would like to give you one illustration, and that will conclude what I have to say.

The CHAIRMAN. Have we a copy of your statement?

Mr. Mock. I do not have more than one, but I will leave that here. The CHAIRMAN. Very well. You may proceed.

Mr. Mock. The basic purposes of the general housing bill-S. 1592-now under consideration in the Senate are to provide as quickly as possible adequate low-cost housing for middle-income and low-income families. It provides also for permanent unification of the several Federal agencies which up to the present have had a partial and varying responsibility for housing.

The Family Welfare Association of America has been concerned for a long time about the housing needs of families of low and moderate income. It believes that minimum adequate housing for all of our families cannot be provided without Government regulation, planning, and especially for the lowest income groups, some Government subsidy.

The inadequacies of housing available to many low-income families, as well as to families of certain racial groups, are well known to all family case-work agencies. They see in their day-to-day work with such families the harmful and blighting effects of substandard housing. It is a contributing cause of disease, delinquency, and crime. It limits