The technique of the collectivist lobby is simple. It represents to the public that it is fighting the battle of "the people" against "selfish interests" and "monopolies." It characterizes those who own property, or who represent them, as the "real estate lobby." It is not fighting the battle of the people at all, but is working to lay new burdens on the people. It has lured uninformed idealists to its support, but its main drive is to bankrupt and collectivize America. Instead of truthfully placing the blame for the present situation where it belongs on the financial policies of the New Deal administration and its unholy alliance with the labor barons-it blames that part which is hardest hit-the building industry. As if it were to the interest of any business to destroy itself by pricing itself out of the market.

"But," it may be said, "regardless of who is for it or against it, is not public housing for low-income groups a humane duty?"

The answer is "No." Not unless the individual is to abandon all individual responsibility. So-called public housing is detrimental to the welfare and future of the whole free economy of America. If it wins the so-called low-income groups stand to lose along with all other Americans. Their immediate benefit would be illusory, and would be followed by irreparable loss.

The whole theory of public housing is destructive of freedom. It is a bald application of the fine-sounding but deadly phrase of classical socialism: "From each according to his ability, to each according to his need."

Housing costs money. Low-income families placed in public housing pay a rental far below actual cost. Somebody has to pay the difference. Who does? "The Government pays," cry the collectivists.

Rubbish! Government never pays for anything.

It has no money of its own. Government merely handles the money of the people. In taking the money of taxpayers to meet the deficits on public housing it deliberately takes from some, lowering their standard of living, and gives to others-raising momentarily their standard. That there is no power granted or intended to be granted in the Constitution to redistribute the earnings of the people will never deter a bureaucrat who himself lives upon the earnings of those who produce. Parasites thus create parasites, and the process will probably go on until the number supported by the earnings of the producers becomes so great that the burden can no longer be carried. Then, when our economy breaks down, the collectivists will cry out, "We told you so." Capitalism.can't do the job. Capitalism has failed."

The second solution-more Federal intervention-is often presented in combination with demands for some public housing. In general, the forces demanding it also demand public housing. Federal intervention in private building is advocated by bureaucrats who have their jobs to think of, labor barons who have maintenance of unreasonable labor costs to think of, and collectivists who have the bankruptcy of our free economy to think of.

To choose this solution is only to imagine that measures which have created an intolerably bad situation will, if continued and enlarged, cure all our troubles. It is like assuming that the way to cure a localized infection in an individual is to spread that infection throughout the entire body.

THE SOUND COURSE

In our judgment the third solution is the sound, American solution. Let Government withdraw from housing. After a short period of adjustment we shall see the law of supply and demand bring down the cost of housing, especially the exorbitant and fraudulent factors in the labor-cost element. We will then have the greatest period of housing construction America has ever seen. When the market is permitted to function freely millions of new, reasonably priced dwelling units will eventually be constructed.

This, however, is predicated upon two conditions. The first is that Federal purchases of building materials for European aid shall not be permitted to exhaust materials now in short supply here. If such excess purchases are made neither private enterprise nor the Government itself can build houses to meet our domestic needs. This is a matter squarely up to Government, and cannot be laid at the door of private enterprise.

The second condition is that Government shall not only abandon its intervention in housing, but remove the penalties represented by excessive taxation. This will make reasonable profits possible at lowered costs, and so provide the incentive without which no sensible man will risk investment of capital, effort, and brains.

The House should reject the economic idiocy of the so-called Taft-EllenderWagner housing bill, passed on April 22 by the Senate. The only building such measures can stimulate is building constructed at artificial costs which cannot in the long run be maintained, with ultimate disaster to purchaser, builder, and taxpayer alike. With ultimate disaster, also, to our system of American free enterprise.

Restore private enterprise, give it sufficient incentives, and there will be no housing problem in America.

LINCOLN WAS RIGHT

Abraham Lincoln, responding to Socialists of his day, said:

"Property is the fruit of labor; property is desirable; is a positive good in the world. That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him, who is houseless pull down the house of another. But let him work diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built."

Government housing is socialism-is one of the chief planks in the Socialist and Communist programs.

If our politicians and candidates for office continue to fall for this sort of stuff, then the houses of all of us, rich and poor alike, will be pulled down upon us in the general ruin of the Republic.

MERWIN K. HART, President, National Economic Council, Inc.

STATEMENT OF J. T. SANDERS, LEGISLATIVE COUNSEL, THE NATIONAL GRANGE 1. The National Grange recognizes that the housing shortage is one of the most acute shortages arising as an aftermath of the war. One of the greatest injustices facing the GI who so wholeheartedly gave of his utmost physical, mental, and spiritual capacity in the field was the injustice of having no decent house to live in when he returned, married, and tried to start a home of his

own.

2. A farm organization with approximately 800,000 members living largely on family farms could not be oblivious to such great need as the current housing shortage. We therefore heartily approve of the general intent of S. 866, but are fearful that it does not provide the best way to meet this great housing need and yet preserve the freedom and economic safety of the future homes of our citizens.

3. We believe the rural housing situation is fully as acute a problem as is the urban housing problem. We believe the causes of this problem, both urban and rural, are such that easy credit or even private and public housing subsidies do not get at the roots of the problem. The real causes lie in a general postwar shortage of homes as a result of suspended building of homes during and prior to the war; to postwar inflationary forces; to high building labor costs; to current padded builders' and contractors' margins; and to antiquated building codes. Obviously cheap credit will not overcome these difficulties-indeed, will aggravate their burden to the young home owner. If this burden is shifted from the home owner by public subsidy, the burden and the aggravation is merely shifted to the future public. The problem will not be solved in this manner, although its acuteness may be relieved and pressure of shortages shifted to other needs or shortages than housing needs. The real, the only, solution lies in full economical production until shortages in general are eased.

4. Due to this situation as to the basic cause and nature of the problem, we are opposed to the general oversubsidization features of private and public building and the easy credit features of S. 866. But we especially feel that title VII, the farm housing subsidy provisions, are not the most acceptable approach to a solution of the farm home shortage.

5. The general subsidizing nature of this rural housing provision is indicated by the fact that the borrower needs to show only that his housing facilities are not decent, safe, and sanitary; that he does not have the resources to correct these; that he cannot get credit to do it; and finally, that if his and the farm's lack of earning capacity justifies it, the Government may, for the first 10 years of the loan, cover his annual interest and one-half of his annual payments

on the principal. All this is to be a loan not necessarily based on a first lien on the farm. Thus the Government assumes nearly all of the risk for the first 10-year period of the 40-year loan.

6. There is, however, a vital difference between placing an overburden of credit on a farm as a going business concern and on an overburden mortgage on a city home. A farm is both a business unit and a home. The home on the farm is the part of the investment that is not productive of farm income, yet the cost of the residence is an inseparable part of the farm investment. If this nonincome-producing part is overburdened with debt, it may drag the whole farm business down in foreclosure. The alternative to loss of the business to the farmer is to write off the debt as loss to the Government. Arrangements of this kind are not good for the farmer or the Government. We believe the farm housing shortage problem can, and should, be met by a safer and more businesslike way than is provided for in S. 866. We therefore recommend that this portion of the bill, title VII, be dropped.

STATEMENT OF AMERICAN BANKERS' ASSOCIATION ON S. 866, BEFORE THE HOUSE COMMITTEE ON BANKING AND CURRENCY

S. 866 seeks to effectuate its purpose by further liberalization of credit through establishing credit aids and new forms of Government guaranty to institutional leaders; through increasing direct Government financial aid to local public bodies and to farmers for farm housing; all of which would add to the present already adequate supply of money and credit. These measures are characteristic of a depression economy and should not be injected into the inflated economy that exists throughout the Nation today. The added liberal credit measures proposed by this bill would increase competition for building materials and labor, thereby adding to inflationary forces which may further increase building costs and add to the difficulty of building houses to supply the needs of the people who are intended to be benefited by this bill. Any increase in the cost of new construction will be reflected in an increase in the resale price of homes already constructed, thereby necessitating a further increase in the amount of mortgage credit to finance such transactions.

Private credit is adequate. The liberal credit devices proposed in this bill were first introduced in Congress over 2 years ago. In this period, without adoption of any of these devices, the four major institutional lenders increased their mortgage loans by approximately $10,000,000,000. The banks of this country have the capacity to continue to make sound loans to finance the building and the purchase of homes. Insurance companies, savings and loan associations, and other private investors also are financing a large volume of home loans. The mortgage loan capacity of these four major institutional lenders, namely, commercial banks, mutual savings banks, savings and loan associations, and insurance companies, is evidenced by aggregate savings funds of 107.7 billion dollars, as of December 31, 1947, while on this date their mortgage loans aggregated 31.7 billion dollars. No additional or new credit incentives or aids are needed to meet the demands to finance the home-construction industry.

Since 1945 there has been substantial progress made in the construction of homes. For example, new permanent nonfarm dwelling units started in 1945 were 209,300; in 1946 were 60,500; and in 1947, 849,000. Completions in 1947 were 834,500 units. In 1925, which was the highest previous period of homebuilding activity, there were 937,000 units started. Based on the number of units started during the first 4 months of 1918, namely, 257,000 units, which is an increase of 25 percent over 1947, the indications are that building activity for the year 1948 will exceed all previous records.

More liberal credit, as proposed in this bill, will not produce any more housing. Although building materials are in greater supply today than at any time since VJ-day, it is questionable whether productive capacity and available manpower could further support any substantial expansion in the present record volume of construction. Furthermore, there is a possibility that materials necessary for home construction may again be in limited supply as a result of the present national defense and European recovery programs. Therefore, the effect of the enactment of this bill would be to exert an inflationary pressure on prices of housing without in any way increasing the supply of housing.

The proposals contained in this bill, particularly those for direct assistance in the form of loans and grants for slum clearance, public housing, and farm housing, should be considered in relation to the over-all fiscal policies of the

Government. At a time when this country is embarked on an expanded defense program, to cost many billions of dollars, and at the same time is committed to an expenditure of more billions for foreign economic aid, most careful consideration should be given by Congress to any proposals which would increase the burden of the public debt.

So far this statement presents the views of the American Bankers Association on the bill as a whole. It is desired, however, to comment briefly on certain of the specific provisions of the bill relating to mortgage lending, which it is believed should be eliminated or modified if Congress should favor the enactment of this legislation.

EXTENSION OF FHA TITLE VI

Title VI of the National Housing Act was created as an emergency measure to provide financing of homes of war workers on the basis of current necessary costs. It was continued as a temporary measure to provide for financing of housing for sale or rental to veterans. It is believed that regardless of how successful this title may have been in meeting this purpose, it has directly contributed to the high prices of housing, and its continuance would not be in the best interests of the veterans nor our national economy. Should the Congress feel that an extension of title VI is necessary to provide a transitional step, then the American Bankers Association recommends that such extension should be for the shortest period possible and in no event more than 1 year, which extension should be final.

SECONDARY MARKET FOR GI HOME LOANS AND FHA INSURED MORTGAGES

Title II of S. 866 would establish a secondary market for residential mortgage loans which have been insured under the National Housing Act or guaranteed or insured under the Servicemen's Readjustment Act of 1944, as amend.

As to the FHA insured mortgage loans, there already exists an established secondary market for these loans in the Federal National Mortgage Association. Since the Congress recently approved the continuation of the Federal National Mortgage Association, there appears no logical reason to transfer its functions to the proposed National Home Mortgage Corporation as provided in this bill.

The association recognizes the inflationary effects on real-estate prices which may follow the reestablishment of any governmental secondary market for GI loans without proper safeguards. The association is opposed to an unrestricted secondary market for these loans such as that formerly provided in the RFC Mortgage Company.

The provisions of this title contain certain safeguards which appear to be directed at minimizing the inflationary influences that the proposed secondary market would have on the cost of housing for veterans. However, the effectiveness of these safeguards will depend to a large exent on the administration of the law by the purchasing agency, the National Home Mortgage Corporation.

It is believed that one of the strongest deterrents on the creation of inflationary pressures through the proposed secondary market would be a requirement that loans to be eligible for purchase by the Corporation must be held for a reasonable period by the lender. A lender will use greater care in making loans if required to hold them for a period of time. It is suggested that section 205 (b) be amended to provide, in addition, that no loan may be purchased until 1 year after its date of origin. This would postpone actual purchasing by the Corporation until a year after the effective date of the act. As a means of making this market of immediate value to the lending program established by the Servicemen's Readjustment Act of 1944, it is suggested that the Corporation be empowered to make commitments to purchase loans a year in advance, provided such loans are not in default at the time the purchase is to be made. In order to maintain the 2-year market that is now contemplated, it would be necessary to change section 205 (e) so that the purchasing time limit would be extended to June 30, 1951.

There is nothing in this title that specifically prohibits the Corporation from purchasing loans at a premium. While it may be reasonable to anticipate that the Corporation would not pay premiums for loans, it is suggested that it would be wiser to make it clear in the law itself that no loan shall be purchased by the Corporation at a price in excess of the unpaid principal of the loan plus accrued interest. This would tend to remove any profit motive from the use of the secondary market.

AMENDMENTS TO FHA TITLE II

Subsection (k) of section 101 of this bill would add a new provision to section 203 (b) of the National Housing Act. This new provision is designated as a transitional period amendment to take effect after March 31, 1949, the date on which title VI would terminate. It would provide:

Ninety-percent loans on new homes not exceeding $6,000 appraisal, for 30 years, and at a maximum interest rate of 4 percent. It also provides for 95-percent loans if the loans do not contribute to inflation. A further provision is made to permit firm commitments to builders up to 85 percent instead of 80 percent now permissible.

The American Bankers Association is opposed to the proposed liberalization of the insurance eligibility requirements for the following reasons:

1. The amortization payments on a 90-percent mortgage loan repayable over a 30-year period would not equal normal annual depreciation of the property the first 8 or 10 years. Should there be a decline in our economy, the owner could, to his advantage, occupy the house a few years and then abandon the property, leaving the mortgagee no alternative but to foreclose and make claim on the insurance fund.

2. During the early years of the loan the owner acquires little equity in the property and may regard amortization payments as rent. This could result in a lack of incentive to maintain the property in good condition. The mortgagor with adverse change in his financial circumstances may allow the mortgage payments to go into default, requiring foreclosure and a charge against the insurance fund. 3. Should there be a decline in the borrower's earning power, making it difficult for him to maintain his payments, a 30-year loan would not leave any leeway for the mortgagee to grant relief to the mortgagor by recasting the mortgage.

4. The mutual mortgage insurance plan under title II was originally conceived as a sound program. The effect of the proposed amendment may be to impair the insurance fund under title II by reason of losses which are more likely to result from these high-risk loans. Losses on high-risk loans would tend to dilute this insurance fund and would be unfair to lenders whose mortgages are already insured.

5. If this amendment is enacted, lessened confidence of mortgage lenders in the continued soundness of the fund may discourage them from insuring mortgages in the future. This may have the effect of destroying the usefulness of the FHA insurance program.

Stronger objections can be made to an 85-percent loan to builders. There appears to be no sound reason why a speculative builder should be required to have only 15 percent of his funds invested in the property, particularly when a part thereof will be represented by his profit. Furthermore, if the market price of realty should turn downward, builders may be inclined to abandon the properties financed with such loans.

RENTAL HOUSING AIDS FOR FAMILIES OF MODERATE INCOME AND VETERANS

What we have said with respect to the amendment to section 203 contained in section 101 (k) of the bill relating to 90- and 95-percent mortgage loans to home purchasers and builders applies equally to the provisions of section 401 of this bill for the insurance of 90- and 95-percent mortgages on housing projects constructed by nonprofit organizations.

YIELD INSURANCE

Section 402 of the bill adds a new title VII to the National Housing Act, which would guarantee to owners of rental projects a minimum return on their investment under certain conditions. This proposal to have the Government guarantee the return on private investment would put the Government into an entirely new field and establish a dangerous precedent. It is not the function of the Government to protect its citizens against ordinary business risks.

Section 101 (n) of S. 866 contains amendments to section 207 (b) and (c) of the National Housing Act designed to both broaden and liberalize the insurance now provided under this section.

Section 207 (b) (1) would be broadened to make eligible for insurance under this section mortgages on properties held by housing corporations restricted by regulations of State banking or insurance departments as to rents, charges, capital structure, rate of return, or methods of operation. This amendment would per