and then, under proper safeguards, to sell or lease them to private individuals for redevelopment. There is also encouragement in the appropriation made this year by the Illinois Legislature to assist municipalities in that State to finance urban redevelopment programs. The States and cities are in better financial position than they have been in years to assume the costs of local improvements. They should be encouraged by Congress to take the initiative and to assume the costs of financing these new, important, but as yet untried and experimental programs for reclaiming slum and blighted areas. Congress should see to it that its fiscal policies are such as will not unduly hamper the ability of the State and local governments to carry out their responsibilities in this and in other fields which are properly in their jurisdiction, or to tempt them by Federal grants to evade such responsibilities.

Bill contemplates large expenditure: S. 1592 contemplates an expenditure by the Federal Government for housing and for urban redevelopment of several billion dollars over a period of years. These expenditures will be financed by issuing obligations, largely taxexempt, which will be repaid by what might be called a sinking-fund arrangement, which in the bill goes under the name of annual Federal contributions.

Proposed expenditures would be untimely and inflationary. Much of this expenditure of Government funds would occur during the next 5 years, at a time when the private building industry will be straining every resource to take care of accumulated housing and other building requirements which can and will be financed by private funds. It would occur at a time when the States and cities are in a better financial position than they have been in years to assume the costs of programs for reclaiming slums and blighted areas. It would occur at a time when Congress itself faces the extraordinarily difficult fiscal problems created by a debt approaching $300,000,000,000. It would be an untimely and inflationary expenditure of Government funds.

Most of the Federal expenditures contemplated in S. 1592 are for public housing and related slum clearance with the objective of providing housing for low-income groups at prices they can afford to pay. This objective is accomplished not by the production of improved housing at lower cost, but by subsidies in the form of low interest costs, and by local tax concessions. Thus housing becomes a social goal, regardless of the ability of a project to sustain itself economically, and the occupants become quasi-wards of Government. Builders, landlords, home owners, and investors naturally wonder whether housing has entered an era in which its otherwise bright future is to be obscured by the threat of Government competition, and the threat of ultimate Government ownership and control of all housing.

Significance of interest rates: S. 1592 is conspicuous because of its stipulations throughout of very low interest rates and, therefore, no discussion of the bill would be complete without some comment on this subject.

Earlier this year, able testimony was presented before the Taft subcommittee by Elbert S. Brigham, president of the National Life Insurance Co., and Paul Bestor, vice president of the Prudential Insurance Co. of America, who emphasized that any consideration of the future

of housing and mortgage financing requires giving attention to interest rates and their relation to mortgage activity.

During recent years, money rates including mortgage rates have been the lowest in history for reasons which are well known. From various quarters, the suggestion is advanced that rates should be still lower, and that the Federal Government should establish and maintain them at incredibly low levels by governmental action.

The intentions of these persons undoubtedly are of the best, but we should not overlook probable consequences of such rates or the rights of lenders who represent the savers of the country, as well as the rights of borrowers, and the fact that most savers are dependent upon the income from their savings to support them when incapacitated for work.

A substantial and satisfactory spread must exist at all times between the rate on mortgage loans and other investments or mortgages cease to be appealing investments. Let us take, for example, loans with a 42-percent interest rate. Recently at the American Life Convention annual meeting held in Chicago, consideration was given during a panel discussion to the net interest return on mortgage loans. Figures as to the interest rate and cost of administration were presented by representatives of four different companies. These figures were averaged and it was demonstrated that, assuming a 42-percent interest rate on mortgage loans, the net return is 3.04 percent after deducting costs as follows: Service fee, 0.55; originating commissions, 0.43; principal losses, 0.15; home office expenses, 0.33.

Had the gross interest rate on these loans been 4 percent, and other costs the same, the return to the investor would have been 2.54 percent. Instead of buying FHA loans or uninsured mortgage loans, an investigator can purchase long-term Government bonds at 22 percent with no risk of loss, or corporate obligations. Bonds can be registered and the check for interest is mailed to the investor on each interest payment date. With bonds, the lender encounters no difficulties in servicing loans, problems in personnel, foreclosure, liquidation of acquired real estate, or any of the other problems inherent in mortgage lending. It is imperative that the net return on mortgage loans must be attractive to investors in order to induce them to make loans. Prospective mortgagors are in constant competition with other borrowers, including railroads, industrial organizations, and all other seekers of credit.

This subject of interest rate is part and parcel of the still larger problem of inflated construction costs and abnormal real-estate values. It is idle to devise more governmental machinery for housing, while ignoring the obvious fact that today costs and values are the great hurdle in the path of speedy correction of housing shortages. As a result of governmental deficit financing during the war and in prospect for sometime to come, a huge money supply has been built up far in excess of any reasonable need of the economy. It operates as a continuing inflationary threat on all prices, real estate and other. In addition, it operates to increase the supply of investment funds and to force interest rates downward.

As previously pointed out, a certain spread is necessary between mortgage interest rates and the rates on Government and corporate bonds, which means that when Government bonds are available at

and then, under proper safeguards, to sell or lease them to private individuals for redevelopment. There is also encouragement in the appropriation made this year by the Illinois Legislature to assist municipalities in that State to finance urban redevelopment programs. The States and cities are in better financial position than they have been in years to assume the costs of local improvements. They should be encouraged by Congress to take the initiative and to assume the costs of financing these new, important, but as yet untried and experimental programs for reclaiming slum and blighted areas. Congress should see to it that its fiscal policies are such as will not unduly hamper the ability of the State and local governments to carry out their responsibilities in this and in other fields which are properly in their jurisdiction, or to tempt them by Federal grants to evade such responsibilities.

Bill contemplates large expenditure: S. 1592 contemplates an expenditure by the Federal Government for housing and for urban redevelopment of several billion dollars over a period of years. These expenditures will be financed by issuing obligations, largely taxexempt, which will be repaid by what might be called a sinking-fund arrangement, which in the bill goes under the name of annual Federal contributions.

Proposed expenditures would be untimely and inflationary. Much of this expenditure of Government funds would occur during the next 5 years, at a time when the private building industry will be straining every resource to take care of accumulated housing and other building requirements which can and will be financed by private funds. It would occur at a time when the States and cities are in a better financial position than they have been in years to assume the costs of programs for reclaiming slums and blighted areas. It would occur at a time when Congress itself faces the extraordinarily difficult fiscal problems created by a debt approaching $300,000,000,000. It would be an untimely and inflationary expenditure of Government funds.

Most of the Federal expenditures contemplated in S. 1592 are for public housing and related slum clearance with the objective of providing housing for low-income groups at prices they can afford to pay. This objective is accomplished not by the production of improved housing at lower cost, but by subsidies in the form of low interest costs, and by local tax concessions. Thus housing becomes a social goal, regardless of the ability of a project to sustain itself economically, and the occupants become quasi-wards of Government. Builders, landlords, home owners, and investors naturally wonder whether housing has entered an era in which its otherwise bright future is to be obscured by the threat of Government competition, and the threat of ultimate Government ownership and control of all housing.

Significance of interest rates: S. 1592 is conspicuous because of its stipulations throughout of very low interest rates and, therefore, no discussion of the bill would be complete without some comment on this subject.

Earlier this year, able testimony was presented before the Taft subcommittee by Elbert S. Brigham, president of the National Life Insurance Co., and Paul Bestor, vice president of the Prudential Insurance Co. of America, who emphasized that any consideration of the future

of housing and mortgage financing requires giving attention to interest rates and their relation to mortgage activity.

During recent years, money rates including mortgage rates have been the lowest in history for reasons which are well known. From various quarters, the suggestion is advanced that rates should be still lower, and that the Federal Government should establish and maintain them at incredibly low levels by governmental action.

The intentions of these persons undoubtedly are of the best, but we should not overlook probable consequences of such rates or the rights of lenders who represent the savers of the country, as well as the rights of borrowers, and the fact that most savers are dependent upon the income from their savings to support them when incapacitated for work.

A substantial and satisfactory spread must exist at all times between the rate on mortgage loans and other investments or mortgages cease to be appealing investments. Let us take, for example, loans with a 42-percent interest rate. Recently at the American Life Convention annual meeting held in Chicago, consideration was given during a panel discussion to the net interest return on mortgage loans. Figures as to the interest rate and cost of administration were presented by representatives of four different companies. These figures were averaged and it was demonstrated that, assuming a 412-percent interest rate on mortgage loans, the net return is 3.04 percent after deducting costs as follows: Service fee, 0.55; originating commissions, 0.43; principal losses, 0.15; home office expenses, 0.33.

Had the gross interest rate on these loans been 4 percent, and other costs the same, the return to the investor would have been 2.54 percent. Instead of buying FHA loans or uninsured mortgage loans, an investigator can purchase long-term Government bonds at 22 percent with no risk of loss, or corporate obligations. Bonds can be registered and the check for interest is mailed to the investor on each interest payment date. With bonds, the lender encounters no difficulties in servicing loans, problems in personnel, foreclosure, liquidation of acquired real estate, or any of the other problems inherent in mortgage lending. It is imperative that the net return on mortgage loans must be attractive to investors in order to induce them to make loans. Prospective mortgagors are in constant competition with other borrowers, including railroads, industrial organizations, and all other seekers of credit.

This subject of interest rate is part and parcel of the still larger problem of inflated construction costs and abnormal real-estate values. It is idle to devise more governmental machinery for housing, while ignoring the obvious fact that today costs and values are the great hurdle in the path of speedy correction of housing shortages. As a result of governmental deficit financing during the war and in prospect for sometime to come, a huge money supply has been built up far in excess of any reasonable need of the economy. It operates as a continuing inflationary threat on all prices, real estate and other. In addition, it operates to increase the supply of investment funds and to force interest rates downward.

As previously pointed out, a certain spread is necessary between mortgage interest rates and the rates on Government and corporate bonds, which means that when Government bonds are available at

9 percent, the mortgage rates cannot fall much, if any, below 4 percent without funds flowing into governments in preference to mortLog However, if the supply of funds is large enough, it will force ་་་་་་་ ་ Twth raten lower while maintaining the differential, as is happening now in the markets for Treasury bonds and mortgages.

At the me time, the pressure of an unwieldly money supply is a pudent bustor in pushing prices upward. In real estate where control ine wo extremely difficult to apply, it operates both directly in fimulating the building up process, and indirectly in facilitating

Two are to control inflation, we must attack the root causes, among them an excesive and expanding supply of money. In my view this will involve, first, balancing the Federal Budget with restraint upon new pending and maintenance of high tax revenue, and, second, reduction of the money supply

The money supply is now largely in the form of bank deposits wwned by the general public. It can be reduced by refuz link the

og bank owned short term securities into long-time boling Aw the public In other words, we should seek to induce the publ fxpor Per deposers for Government ben is.

Pat the most effective way to seemplish this is u