And I think this: that it may create a moral obligation on the United States Government if they permit debenture bonds sold, and there are heavy losses, and the insurance does not cover it. And this would carry discredit to an otherwise sound plan.

Senator BULKLEY. What is your specific suggestion-to cut out the low-cost housing part?

Mr. McAvoy. No; I would not say that. I think that it ought to be perhaps confined to homes that would not exceed four families. Personally, I think that the greatest thing that has served this country through this strife and has kept down troubles, serious discontent, has been the great home-ownership movement that took place since the war. It has been, I think, the greatest stabilizing force to orderly government. One of the objections to slum housing is that you put up enormous buildings, somewhat flashy and in wretched territories, and you do not give the children light, air, or better environment.

Senator WALCOTT. Cheap construction.

Mr. McAoy. Cheap construction and the flashiness quickly leaves it, because that is a surface situation to cover the moves necessary to get it to a low cost, and all you have done is to rebuild slums.

My idea of slum clearance is to build little homes along the subsistence-housing idea. I hate the word. I would rather call it "liberty homesteads." I have suggested that name as a substitute for it. They should be built in nearby territory. Transit conditions today have changed. The automobile and auto bus have completely altered the old situation which originally caused cities to build their slums. That original need of nearness to a center is gone. There is talk and action as to a decentralization of industry today that further warrants my recommendation and I would like to advocate that low-cost housing be entirely confined to 1-, 2-, 3-, and 4-family houses built primarily to eventually sell to a home owner.

Senator WAGNER. Where the housing area, as you call the slum area, becomes so uninhabitable, then what you do have the public authority condemn the houses and remove them altogether, convert them into parks and things of that kind?

Mr. McAvoy. Demolish them, convert them into parks, and recapture them to make what so frequently they should have made in the beginning. There are not parks enough in the congested district.

Let me tell you, Senator, regarding a home-owning movement that I was so active in in 1923 just outside of Manhattan. I used to go into the tenement district on the East Side, and I would find somebody that was ready to make the agreement to move. He was so grateful for the chance that he insisted on giving me all the money on the contract. They were so grateful leaving that territory that maybe they lived 15 years in to make that money. And they left there, and they left a chance for a better abode to somebody down the line. That created a vacancy. Somebody down the line in a worse habitation got that better thing. So, as you demolish the poorest you merely meet a decreased population, and you know Manhattan's population has decreased tremendously through that movement to the suburbs; and this applies all over our country because of improved transportation.

Senator WAGNER. Yes; decentralization.

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Mr. McAvoy. If you move those people, then there is a better selection all the time at lower rents. There is an economic filtering there. Then if you demolish the things, in many cases there is really a need for business in some of those territories, don't you know, Senator, in many of the cities. Certainly they need parks and playgrounds badly, too.

Senator WAGNER. Yes; there is a shortage of parks.

Mr. McAvoy. And I saw one of these schemes that was laid out for slum clearance and they said they were providing for the children, and they had planned a 10-story structure, a tall, towering building built on stilts to provide a playground underneath. The children would be better off in the street with the dangers of the automobiles. At least they would have a little sun and air. Here you were putting them in a literal basement to play. And that is poor business, I think. That is not better housing.

I would like to limit that to houses not to exceed four families and built primarily to sell eventually, even if rented in the beginning. Senator WALCOTT. Of course, that would apply particularly to the large cities. Would you put any restrictions on there as to size of the city? Because that is where you find your worst slums invariably.

Mr. McAvoy. I would tend toward the demolishment.

Senator WALCOTT. Yes; I agree with you entirely, but how are you going to express that? Do you think that your ground rent would be so high in a city that if you put a four-family house up

it would take care of it?

Mr. McAvoy. Frankly this: As far as a low-priced housing is concerned I am convinced as a builder that it cannot be done without capital grants, without subsidies with interest at 2 percent or less. It cannot otherwise be done. Therefore, I do not approve of selling debentures to the public under any insurance plan that looks like a Government proposition and later the Government, maybe 10 years from now, being forced to say: "This seems like a moral obligation of ours. We should not have sold them under the guise of an in

sured item."

Senator WALCOTT. It would be an instrumentality of the Government, just as your joint-stock land bank.

Mr. McAvoy. Yes; but your ignorant investor would think that associations are permitted-we must remember high-pressure selling methods if profit-making-it was a hundred percent guaranteed.

Senator WALCOTT. Yes; there is a moral obligation there.

Mr. McAvoy. I don't think we ought to go into that. I think where slum-clearance housing is an absolute need it has got to come through a subsidy. That is the only sound way it can be done. We have had much talk about it in New York, and that is all we have had as yet.

Senator WAGNER. Would you prefer a subsidy, or would you rather see the municipality doing it itself?

Mr. McAvoy. I think under the present situation of unpaid taxes that the municipalities are going to get a lot of this kind of property in lieu of tax payments.

Senator WAGNER. What do you mean by a subs dy-subsidy to a private individual?

Mr. McAvoy. No; a subsidy of the Government to the municipal

ity.

Senator WAGNER. Oh, I see.

Mr. McAvoy. It is not practical otherwise, Senator.

Senator WAGNER. I thought you were talking about a subsidy to a private individual.

Mr. McAvoy. No; that would be too dangerous.

Senator WAGNER. Yes.

Mr. McAvoy. But I have gone over many of these housing projects, Senator, and the law permits $11 a room; but you could no more get $11 a room in the territory they contemplate than you could fly. People who can afford to pay $11 a room would not live in those districts.

On page 8, article 7, we feel that new loans should be made only in accordance with a loaning survey, and that this running inventory or survey of community needs should be jointly determined by the Federal units, the realty bodies, and building-material dealers and loaning institutions, with a recheck in each State, and that all the loaning interests of the country, Federal units, savings banks, insurance companies, and so forth, be induced to enter into an agreement for a certain number of years to loan only in accordance with the true home needs of the community.

I offer for the record, pages 65 to 71 of an address made by me before the Mortgage Conference of New York, February 1, held at the Hotel Commodore, which outlines such a "loaning circle.”

(The matter here submitted by Mr. McAvoy appears at the end of today's proceedings.)

Mr. McAvoy. In every movement toward new construction that I have seen we see an overbuilding of certain types that are popular, with a ruination of the existing housing. For 20 years I have tried to get loaning institutions to work out this idea, but they have never gotten together on this, but they simply overloan in every cycle of upturn, and they damage not only their new collateral but the old, and constantly keep the real-estate market from ever achieving stability.

I think the United States Government has in the tremendous collateral under the Home Owners' Loan Corporation and the tremendous amount of mortgage collateral that it has under the R.F.C., loans to banks and to mortgage companies, a stake so vast that they must center on and work out such a plan and keep a running inventory and that they should say to the institutions that secure benefits from them, such as the exchange of crippled mortgages for homeloan bonds, that in return they agree for a period of years to enter into such a mutual protective agreement.

The Home Owners' Loan Corporation, incidentally, is doing a dual service. It is rescuing and making solvent many mortgage companies and many loaning institutions, and they should say that you must agree for the next 10 or 20 years to enter into an agreement not to loan except to accord substantially with this survey as to each community's needs and to agree as well to conform to better substance of construction and design.

I believe that the time is ripe to do it. When times get better and competition comes for loans you will find that they will not

want to enter into such an agreement, but I believe now that they are so worried about their collateral that they will all gladly do it. Remember, now, that there is something to trade with.

Also, we feel that regulations concerning appraising should be written into the act, stipulating that qualified real-estate appraisers should be utilized. Appraisers that were qualified as expert appraisers back as far as 1926 and members of recognized realty bodies, to whom they are responsible for their actions, should be a sort of a classification. Compensation should be paid sufficient to attract such men.

We feel that the failure of the Federal Home Loan Board to utilize such appraisers and to pay fees sufficient to secure them is a serious defect in the Home Owners' Loan Act and one that will be costly to the Government and unfair to individuals and communities if continued.

I have nothing but praise to sing in connection with Mr. Fahey's conduct and the Board's conduct of the Home Owners' Loan Corporation. The tremendous movement of organization and what they have performed and the social and economic benefits already accrued is something that I marvel at. As an appraiser, however, and instrumental in securing schedule H in the Home Owners' Act--true, not in full fashion that I wanted it, but it stipulates that standards for appraisal should be made by the Board as to the methods for appraising-I regret to say that the method used in the regulations of the Board does not encompass what I recommended, and the regulations in a complicated three-way method are such that an expert appraiser could not fill them out. It calls for judgment by field appraisers, low-priced field appraisers, that is impossible for any man to give. The value, for instance, of a lot-what will the lot bring today? No appraiser knows that. What would the reproduction cost of that house be today? Nobody can set it up. Rising building costs under the N.R.A., the objective of the administration to reach 1926 levels, would make it impossible. The total absence of the factor of financing costs make it impossible to give that reproduction cost.

Next, the judgment of a field appraiser: My contention is that that should be immediately remedied. Only expert appraisers, members as far back as 1926 of realty bodies or appraisal associations responsible to their organization, should be employed. The fee should be increased from seven and a half in our State, originally $5 an appraisal, to at least $15 or $20, so that they could hire the type of men to do this, to do the running and bring them in the detail so that the men of mature judgment, long experience, and doing business and knowing some economics, could pass upon the figures of value arrived at. I think this question of appraisals is a most serious thing and one that I feel should be incorporated in this act as one of the most important.

Senator BULKLEY. You mean as an amendment to the Home Owners' Loan Corporation?

Mr. McAvoy. No. I feel that they should do that. They have power under schedule H to revise their regulations. I am not suggesting an amendment as to that at this meeting. But I do suggest that added to this proposed act there should be something like

schedule H in the Home Owners' Loan Act regarding appraisals, except it should be more definite. It should provide for a more scientific method of appraisal than is now being employed by the Home Owners' Loan Corporation.

And I regard as an essential that the experts should be hired and properly paid. It is essential to see that a member of the bar is a lawyer that they hire for their legal closers. However, we have types of men appraising for the Home Owners' Loan Corporation. that are not appraisers. As an appraiser, I am ashamed to use the name myself, when I see some of the types who are appraising— lack of knowledge, lack of experience, and the lack of proper qualifications. I feel that that should be incorporated under section 7 that insures more scientific appraising.

Section 5 on page 6:

No home mortgages shall be insured which involve an original principal obligation in excess of $20,000, or which involve an original principal obligation in excess of 80 percent of the appraised value of the property offered as security therefor in the case of homes constructed since the passage of this act, or 60 percent of the appraised value of such property in the case of existing homes: Provided, That, except with the approval of the President. insurance of mortgages on existing homes shall be limited to an aggregate principal obligation on all such mortgages of not to exceed five times the aggregate par value of the Corporation's outstanding capital stock.

The loans on existing structures there are discriminated against very much as compared to loans on new construction; both as to the percentage of valuation of loans that is permissible and both as to the aggregate of the total mortgages to be held by any national mortgage association. We earnestly advocate that the loans-and I suggest it as an amendment-on both new structures and existing structures should be equal in all respects, both as to percentage of value as to loans and percentage of total of loans held, or at least half and half in regard to the latter respect. As to the percentage of the loan, however, I cannot comprehend any principal that warrants differentiation. Appraisals should be the determining factor between the new and the old. As an appraiser I regard that a higher percentage of loan in relation to value can be more safely made on an existing structure than a new one. This is because the existing house is the seasoned one, in respect to neighborhood and all characteristics upon which values are determined; while the new has yet to prove itself as to valuation established which has necessarily been predetermined.

Now, we know that the moment moratoriums are lifted there will be many distressing circumstances, and also that the Home Owners' Act only takes care of distress mortgage situations. There are many people who have been rescued in our State-in New York-that could not pay their principal but could pay interest and taxes. The moratorium which runs from now until 1935 has safeguarded it. But the moment those moratoriums are lifted, or if many mortgagees find that applicants are refused by the Home Owners' Loan Corporation, there will be calls upon those people for replacements. They should come through under this plan, in my opinion, under the national mortgage associations, but they should come through on the same percentage as the new structures can. The appraisal will determine any differences. And I do not see the reason for limiting as to five times the amount of the capital stock, why it should be