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Senator SPARKMAN. We had testimony the other day that one of the earliest of cooperatives, I believe it was the earliest cooperative housing project of the Amalgamated Clothing Workers, after 22 years' experience still had more than 70 percent of the original tenants. That is pretty high; isn't it? Let's

go back to this point of subsidy. I will make it brief. Mr. RECKMAN. Yes.

Senator SPARKMAN. You state here that you believe that cooperatives and all other private enterprise should be expected to stand on their own feet. It is our contention that that is exactly what we are doing in this bill.

I don't mind saying to you, Mr. Reckman, that last year the proposal came to us for such legislation which I felt did contain a subsidy. I said very frankly that I would not go along with it. I am glad to say that a great many of the people who have helped to develop this legislation took exactly the same attitude, and said "No." These people we want to stand on their own feet. That is exactly what we have tried to work out in this bill. We believe there is no subsidy in it, unless you term as subsidies services such as we give to FHA, and others, in various other programs.

But I will say there is no greater subsidy in this than there is in almost any Government program, RFC loans, for instance.

By the way, I have just looked over the statement of the American Bankers Association which Mr. Woollen put in the record last year when he was here, and you and he both made it clear that you did not believe in Government loans.

But I just wonder if your bank is participating in any Government loans today with RFC?

Mr. RECKMAN. No; we do not have an FHA loan.

Senator SPARKMAN. Of course, members of your association throughout the country have participated in FHA loans? Mr. RECKMAN. Some have; yes.

Senator SPARKMAN. And I don't know how it is over the country generally, but down my way I know hardly a bank that isn't sharing in an RFĆ loan, participating with some private business, and I know in most instances those private businesses went to the banks to try to get their loans, and the banks deliberately sent them to the RFC and said, “If you can get the RFC to go along, we will participate in this loan.” Do you condemn that kind of lending? Ꭰ Mr. RECKMAN. No. Senator SPARKMAN. That is direct Government lending.

Mr. RECKMAN. When you come to your bank for help, it is like going to the doctor; he must give you the best advice he can to help you, and he cannot be selfish in this advice.

Senator SPARKMAN. Let me make myself clear: I was not criticizing the bank. I was pointing out that this is a program in which the Government makes direct loans to businesses in conjunction with participating banks. I was not asking you if you condemned the banks; I certainly don't intend any criticism of the banks. I am for the system. I am for that kind of loan. I think it has done a good job. "I think many times it has helped prop up our economy when it needed propping up.

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I was wondering if you approved or disapproved of that kind of lending by Government or if the Bankers Association does.

Mr. RECKMAN. The national association disapproves any participation of Government in the credit field.

Senator SPARKMAN. And if I interpret correctly that resolution adopted by your association, you certainly do not approve any kind of program in which the Government makes a direct loan, guarantees a loan, insures a loan?

Mr. RECKMAN. As an association; yes.

Senator SPARKMAN. That is the way I interpret your resolution. I understand.

Mr. RECKMAN. Yes. The thought occurred to me, as you were talking, when a banker enters into the mortgage lending field, it has fixed costs all the way down the line. We have to earn those costs out of our interest. We have no one to go to. If we do not have a profitable bank, the supervisory authorities do something about it.

So I am not thinking now of the stockholders. I am thinking of the depositors. That is who the supervisory authorities think about. So, we need not only a safe bank but we need a profitable bank in order to keep the bank sa fe.

Now, when the Government enters the mortgage field, credit field, it has been difficult to determine the actual cost of that participation. The interest rate that has been charged for the loan or paid by the depositors, by the borrowers, I don't know, perhaps you may know whether or not that has been sufficient to pay all of the attending costs, and attendant costs, so that there has been no contribution by the taxpayer for the participation by Government in that particular credit field. Senator SPARKMAN. I certainly agree with you that we want sound

. banks, we want profitable banks, and we don't want the Government entering into the credit field in such a way as to prevent those banks from being both sound and profitable, but at the same time, I think we ought to be very careful of where we draw that line of restriction to make certain that we are not cutting off from credit people who cannot avail themselves of the credit that you offer, and which they ought to have.

That is our point of difference, I think.

Mr. RECKMAN. That is right. And as long as we continue in this competitive economy no one bank makes the rate, let's keep it that way.

Senator SPARKMAN. Of course. Well, we all make the rate.
Mr. RECKMAN. The market place makes the rate.

Senator SPARKMAN. Even in this bill we seek the same thing. Lots of people have said that this is a 3 percent bill. There is not a word here that indicates a 3 percent bill.

We offer to sell the debentures in the open market and to add to it a half percent above that. If the open competitive market will not buy these securities at a rate of interest low enough to make it possible for the people to avail themselves of this credit, then it just doesn't work. We are counting on the open competitive market to do the job and we believe that it will do it, as it has always done it.

There is no rate of interest in this set by the Federal Government.

Mr. RECKMAN. We appreciate that. We use the rate because Mr. Foley in his testimony used it.

Senator SPARKMAN. It is anticipated that at the present going rate it would be about that. We believe the open market would buy these securities. They would be good. You admit they would be good.

Mr. RECKMAN. Any paper with the full faith and credit of the United States Government is good enough for me.

Senator SPARKMAN. I believe that is a good place to stop.
Mr. RECKMAN. Yes.

Mr. Foley injected as he finished his testimony the suggestion having to do with amendments whereby the Federal agencies would be empowered to change the ratio of loans to value, and I should like to get this into the record, if I may:

Mr. Foley last Thursday during his testimony before the Subcommittee on Housing of the Senate Banking and Currency Committee offered an amendment to S. 2246.

This amendment proposed that the present legislation be permitted under certain circumstances to reduce the maximum authorized principal amounts ratio of loans to value or cost or maximum maturity of any type of housing loans which may be made; in short, or guaranteed by any agency or-here is the important word—“instrumentality" of the United States.

I will add that instrumentality of the United States would include national banks. That is the word. It is understood that the loans which would be subject to the President's authority would be subject to those coming within the Government's housing programs such as those administered by the Housing and Home Finance Administration and the Veterans Administration.

However, since national banks have long been held to be instrumentalities of the United States, the proposed amendment would appear to give the President authority over all types of housing loans made by national banks, even the conventional mortgage loans which are not FHA insured or have a guaranteed limitation on ratio of loans to value and maximum maturity prescribed for national banks in section 24 of the Federal Reserve Act.

Similarly, restrictions are provided in banking laws of most States with respect to real-estate loans made by State chartered banks. If the President were given authority, as proposed in this amendment, to reduce such ratios and maturities below the statutory limitations, it would place National banks at a disadvantage competitively with State banks in making real-estate loans.

The American Bankers Association is always maintaining the position that National banks and State banks should be on a parity. We urge therefore that the language of the proposed amendment be changed to exclude National banks from its application.

We don't think that was the intent, but at any rate, we offer that.

Senator SPARKMAN. Is this with reference to some of his testimony before this committee?

Mr. RECKMAN. As he finished the testimony this was offered, I understand.

Senator SPARKMAN. I don't recall it, offhand.
Mr. RECKMAN. Yes.
Senator SPARKMAN. Anyhow, we are glad to have that.
Mr. RECKMAN. Thank you.
Senator SPARKMAN. Are there any further questions?

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Senator LONG. I would like to ask : Prior to the date of the HOLC and the Government beginning to make housing guaranties, as I recall it, the interest rates on a lot of housing loans ran about 8 percent; didn't it?

Mr. RECKMAN. In what district ?
Senator Long. Pardon me?
Mr. RECKMAN. It was in what district?
Senator Long. I was thinking about my area, Louisiana.
As I recall, the going rate seemed to be about 8 percent there.

Mr. RECKMAN. The market rate in the various sections of the country was fixed by the open market in that section in a competitive way. There may have been some 8 percent loans.

I am thinking of the fourth Federal Reserve district where there were no 8 percent loans. Six percent was the maximum.

Senator Long. It could vary from 6 percent to 8 percent?

Mr. RECKMAN. Your State law perhaps might permit that; it is possible.

Senator Long. I believe my State allowed 10 percent.

What would you say about the going rate of interest prior to the time the Federal Government got into the mortgage field or the loan guaranty field?

Mr. RECKMAN. Six percent was the established rate. Senator Long. Six percent? Mr. RECKMAN. Yes. There were spots in the West end, and as you say, in the South, where the rate was higher.

Senator Long. About what terms was the usual mortgage at that time?

Mr. RECKMAN. Generally written for a period of 5 years, and liquidated somewhere between 5 and 10 years.

Senator LONG. At about 6 percent?
Mr. RECKMAN. Yes.

Senator LONG. That means that under favorable circumstances about 16 percent of that loan had to be amortized every year.

Mr. RECKMAN. It was not spelled out that way. The debt amortization was set up on a quarterly reduction plan in those early days, and at the end of the 5 years you took a look at the note.

Senator Long. You usually refinanced.

Mr. RECKMAN. No; if the customer was good, you continued. It worked out.

Senator Long. My recollection of banks and banking systems as to the housing system prior to the time the Government got into the field is that people paid very high rates; I recall others being higher than 6 percent, up to 8 percent. People kept refinancing, and the first time they ran into a recession, they lost their home and had to start over again.

Mr. RECKMAN. There was a lot of second mortgaging following the first, in the early days. The banks did not have the second. It was 100 percent loan, just the thing you are talking about in this cooperative. We would like to have the benefit of our experience in those early days.

Senator Long. Don't you recall that was pretty much the situation prior to the time the Government got into the low-guaranty field, that

people paid much higher rates, and many of them wound up paying high interest rates and then ended up losing the home, too?

Mr. RECKMAN. It wasn't the interest rate that ruined them.

Senator Long. Well, the interest rate plus the short-term credit, between the two of them; interest rate and the short-term credit, the first time they got into any financial difficulty they couldn't continue payment and had to give the payment up.

Mr. RECKMAN. Why did they get into the difficulty? Was it because they paid 6 percent on the mortgage or because of something else!

Senator Long. They could have probably come nearer meeting the payments if they had a longer period of time to amortize.

Mr. RECKMAN. It is a falsity that the rate of interest is the thing that has ruined the borrower and his ability to service the debt; 6 per

6 cent and 4 percent; that is a third less.

Senator Long. The difference between 6 percent and the rate of interest proposed here would mean that a man could buy his house and amortize it over a period.

Mr. RECKMAN. Have you made a computation of what the debt service would be per month on the 3-percent basis with a 50-year maturity!

Senator Long. If he had the money borrowed over a longer period of time he will pay more interest, but the question is: the people who I recall in the old days most of them didn't get out of the debt. They would up paying twice as much interest. When they got into hard times, they couldn't meet the interest. A man would come nearer meeting a payment of $50 or $60 in slack times than a figure twice that.

Mr. RECKMAN. Provided he has an equity in his home. If he can move cheaper, he will move.

Senator Long. I agree that it is preferable to have as much equity as you possibly can.

Mr. RECKMAN. That is right. We are thinking in terms of a sound economy for the Nation.

Senator Long. You have mentioned here that easy credit has done much to cause inflationary measures.

Do you feel we are still in an inflationary trend? My impression is that prices are now coming down.

Mr. RECKMAN. Real-estate prices leveled off and showed a slight decline, but firmed again. If we put into the credit stream $2,000,000,000 more, if we put labor to work for housing, if we have had demand for material, and within a reasonably short period of time, you can't push out this way, it has to come some place, that is inflation upward; that is the point.

Senator SPARKMAN. May I interject this thought: You were not here when the representative of that National Association of Real Estate Boards was here I believe he was the one. Perhaps Mr. Lockwood with the Home Builders Association, too. They testified, and the testimony that they gave us, or at least,

one of them gave us, was to the effect that labor and material were sufficient, in sufficient supply to enable us to build a million and a half houses a year.

Now, I noticed you tied this whole thing to the availability of labor and supplies, and materials.

Mr. RECKMAN. That is right.

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