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Senator SPARKMAN. We only reached about a million during the past year. I don't believe it is anticipated that we will go beyond that or have much beyond it during 1950.

If these witnesses are correct in their statement that we have labor and materials, supplies, for a million and a half, and we build in this country only a million, then these inflationary pressures that you speak of will not be present, will they?

Mr. RECKMAN. They should not be.

Senator SPARKMAN. The whole thing must be measured in relationship to the availability of labor and supplies.

Senator Long. As a matter of fact, we are now getting a period of more unemployment than we want. Isn't that true? We are somewhat concerned now about the growing unemployment.

Mr. RECKMAN. Well, we will have to talk about Mr. Sawyer, I suppose, my townsman.

Senator Long. We know it is a fact, by the President's message, we know some States have all but exhausted their unemployment compensation funds. We have millions more unemployment now than a year or two ago.

Mr. RECKMAN. That is right.

Senator Long. If we start tightening up on credit, don't you think we will have more unemployment?

Mr. RECKMAN. There is not a tightening up of credit. We are not advocating tightening up on credit. We say leave it as it is.

Senator Long. You have had a lot of crediting in on projects such as section 608's. I know your organization has taken no stand on that. There have been banks in the Nation that handled the paper.

If you were opposed to section 608, I believe you would have found it cheering on your side. You say you would like to see equity in some of those things. About half of those section 608's were built and the people that built them weren't looking for anything but the profit.

In many cases the loan exceeded the cost of construction, which I think is an unsound loan by any bankers' standards.

Mr. RECKMAN. Right.

Senator Long. You can say this for them, which is in my opinion the only thing you can say for them: that is that it gave people work in building housing, and for all the shortcomings we may find in the program, at least, people were producing housing that was sorely needed.

Don't you think, if we are going to discontinue that program, we should have some phase of construction to take its place? Home building was about the only thing that was not on the decline last year.

Mr. RECKMAN. Automobiles.

Senator Long. Generally speaking, our gross national production was down in every phase except home building.

Don't you feel there is some purpose in the Government taking a position which would stimulate building activity?

Mr. RECKMAN. You need the houses that we talk about. I think the shortage, if it exists, can be handled by private enterprise, the financing can be handled by private enterprise. The legislation, such as this, may have the effect that grew out of VA, when the guaranty has been raised from $2,000 to $4,000, and overnight the price of real estate jumped up. My heart went out then to the veteran. I sat

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down with many a veteran and in our office tried to help them. I don't know what will happen to this. That is what I am referring

I to. We have had the experience of what a guaranty did. These boys need a roof. There was a guaranty of $4,000; $8,000 houses immediately became $12,000 houses. A year later a $14,000 house was the same house.

Senator SPARKMAN. At that time, we were on an inflationary level.

Mr. RECKMAN. Right. An emergency existed.
Senator SPARKMAN. Today we are pretty well out of that.

Mr. RECKMAN. That is right. We talk about the state of economy we were in at that time.

Thank you very much.
Senator SPARKMAN. Thank you, very much, sir.

Before the committee adjourns, here is a statement from the United States Chamber of Commerce which I have been requested to place in the record.

Here is a telegram from Mr. Lawrence A. Epter, president of the New York Mortgage Association, to be placed in the record; a statement of the American Life Convention and the Life Insurance Association of America with respect to this proposal; a statement on behalf of the American Institute of Architects; a letter to Senator Maybank from the National Retail Lumber Dealers Association; and a statement for the American Association of Social Workers. They will go

in the record also. (The documents referred to follow :) CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA,

Washington 6, D. C., January 17, 1950. Hon. John SPARKMAN,

United States Senate, Washington 25, D. C. DEAR SENATOR SPARKMAN: The Chamber of Commerce of the United States opposes the January 6 Maybank amendments to S. 2246.

In the accompanying statement we point out the extent to which the private mortgage market is being compartmentalized and threatened with destruction. We believe this measure will jeopardize the continuance and the efficient operation of the home-building and home-financing industries, and hence is not in the public interest.

We respectfully request that this statement be made a part of your committee records. Cordially yours,

CLARENCE R. MILES.

GOVERNMENT LENDING TO COOPERATIVE AND NONPROFIT HOUSING CORPORATIONS

ANALYSIS OF THE JANUARY 6 MAYBANK AMENDMENTS TO S. 2246 BY CHAMBER OF COMMERCE OF THE UNITED STATES

The amendments to title III of S. 2246, introduced by Senator Maybank on January 6, provide for a new method for financing housing for rent or sale to be constructed by cooperative and nonprofit organizations. The purpose of this measure, like it predecessor, which was rejected by the House in 1949, is to meet an alleged need for special credit facilities to provide housing for what are referred to as “middle-income families.” These families, it is estimated, are unable to provide decent housing for themselves through the facilities presently available to them.

The Chamber of Commerce of the United States must register its opposition to this as to the predecessor measure. It does so on the grounds that:

1. The measure is not essentially different from the one for direct Government lending rejected by the House last year.

2. The proposed facilities are not essential to the continued improvement of general housing conditions.

3. The measure carries to a climax the process of breaking up the mortgage credit system into a number of special credit systems providing special privileges for separate groups in the population.

4. The measure will create further unsound demands for Government intervention which will be difficult to resist.

CHE BILL IS NOT ESSENTIALLY DIFFERENT FROM ITS ORIGINAL FORM

The original title III of S. 2246 was described as providing "direct lending" for cooperatives and was much criticized as making mortgage lending a direct governmental transaction. The present measure seeks to meet these criticisms by setting up means—to use the words of the HHFA Administrator—"to carry out the proposed program through the investment of private capital, thus eliminating the necessity for direct Federal loans."

The means chosen for enlisting private capital are the establishment of a corporation completely capitalized with Federal funds, which may issue debentures fully guaranteed by the Federal Treasury. This is plainly an example of a confusion in terms that has been growing up with the expanding of the Federal Government in real estate finance. Last year, for instance, it was contended that the purchase by private individuals and institutions of tax-free bonds issued by local governmental housing agencies represented the use of private capital for public or Government housing. It could be as easily argued that the purchase of Federal bonds by private individuals and institutions make the operation of the Federal establishment a matter of private capitalistic enterprise. The difference between a bond that is directly issued by the Treasury and one that is fully guaranteed by the Treasury as to principal and interest is not substantial, except that the latter does not show up in the budget as a Treasury transaction. The financial operation of the proposed National Mortgage Association for Housing Cooperatives consequently essentially a governmental operation.

The directly governmental characteristics of this operation are further demonstrated by the complete control over its personnel and activities that is vested in the HHFA Administrator. The objections that were valid for the original provisions remain valid for the present one, despite the thinly disguised effort to meet them.

THE MEASURE IS NOT NEEDED

The Administrator's contention that “the necessity for greater and more generally effective activity in this area (middle-income housing) is more important than ever" is not substantiated. Since the end of the war, well over 3,600,000 new dwelling units have been built, with probably at least a million more units added by remodeling older buildings in addition to several million existing houses that have been put into good condition by repair and renovation. Certainly the great bulk of these dwellings have been occupied by families in the middle-income group, as the Administrator has defined it as including urban families up to $4,000 annual income in small places and $4,900 annual income in large cities.

In fact the best case that the Administrator can make is that "some middleincome families in most areas have been priced out of the market, and many such families have run into difficulties in high-cost areas.” It would be difficult to conceive of an economic climate so beneficient that some families would still not have difficulty in getting the sort of housing they would like to have—and a measure that, at best, can take care of 200,000 of them is not likely to satisfy as crucial a need as is claimed to exist.

The Administrator adds, “The problem is most acute for families who for economic or other reasons should rent rather than buy." Yet the proposed measure is not primarily concerned with rental housing but with a special type of proprietorship, and one involving very special hazards to the individual at that-for no scheme has yet been designed to protect the cooperator against the defaults of his neighbors.

The present outlook is clearly for an even greater market interest in lowerand middle-income housing than in the past. A shift in the production emphasis to lower-priced models was an outstanding feature of house building in 1949; and the trend continues. Builders are well aware of the necessity of broadening their markets by price and model changes as the rate of family formation declines. Moreover, the threat of a tighter money market which appeared late in 1948 has disappeared. Today interest rates are probably generally as low as they have been at any time since 1946 and 1947. There is no factor in the

current situation that does not presage a steady enlargement of the market and a constant improvement in the quality of the whole supply.

THE MEASURE DESTROYS THE FLOW OF MORTGAGE FUNDS

This measure carries, perhaps to the ultimate, the process of moving from one general financial market in which all demands may make themselves felt to a multiplicity of separate, mutually exclusive markets each designed to serve some special need and each, in the end, dependent for its functioning upon the intervention of the Federal Government.

This process may be illustrated by a reference to the history of FHA. Initially it was designed to provide a means for pooling a major portion of the risk involved in residential mortgage lending. The mortgage market was viewed as a unit; and the FHA facility was available to all, within very broad limitations. It was the theory that, with the underlying support of mortgage insurance and certain improvements in appraisal and lending practices, the market as a whole would function more effectively, and its benefits would be extended to encompass broader and broader areas.

The first step away from this concept of the unity of the market came in 1937 when a special type mortgage insurance was made available for a special class of dwellings—those valued under $6,000. From then on the shift has been rapid, with special loan terms being provided for farmers, war workers, veterans, lower-cost housing, prefabricated housing, large-scale operations, cooperatives, public bodies, and so forth until today there may be counted some 50 ways of designing the terms and conditions of an FHA loan, depending upon the special kind of structure and the special class of borrower that may be involved.

The process has gone much farther than FHA. We now provide for loans to public-housing projects through the Public Housing Agency and to submarginal farmers through the Farmers Home Administration. We have provided for a special class of loans for veterans through the Veterans' Administration. We have provided for especially favorable loans for prefabricated housing through the RFC. In each of these numerous cases it has been assumed that a specially designed set of loan terms was essential to meet a special need. In order to direct the flow of funds into the desired channels it has been necessary for the Federal Government to use a variety of insurance benefits, guaranties, subsidies, direct loans, mortgage purchases, to permit the issuance of tax-free bonds, and so on. When one method of support has failed, as in the case of the guaranteed GI loans during 1949, it has been necessary to provide another type of support, such as the unrestricted purchases of GI mortgages by FNMA.

With this measure, the process becomes almost complete. It will be hard to find any class of housing or any class of borrower, except a negligible remnant of the well-to-do, who have not had some benefit especially arranged for it. The bill creates another federally supported specialized institution to provide an especially tailored loan to a special group of people who happen to have a special range of income and who organize themselves in a special way. All others are excluded. The financial market is assumed to be ready to absorb the kind of securities offered at an assumed rate of interest; but it would be a small matter if the calculation failed, since the move from a security guaranteed by the Treasury to one purchasable by the Treasury has proven to be an exceedingly short one.

The process has been one not only of increasing compartmentalizing of the mortgage market but of increasing dependence upon the Federal Government. Responsibility for the characteristics of residential loans, for the risks of lending, for the distribution of funds in the market has in very large measure passed to Government officials.

PROBLEMS RAISED BY THE GRANTING OF GROUP PRIVILEGES

Beyond the gradual and certain disappearance of private lending in all but form, this process has other significant aspects. While now all but an inconsequentially small group is to have special attention, obviously not all members of all the groups provided for can receive the benefits laid before them. For example, large as it is, the present public or Government housing program will offer 600,000 units to an assumedly eligible third of the population, and the present bill 200,000 for another assumedly eligible third. Consequently the distribution of the Government's benefits becomes in itself a 'highly specialized selective process in which the determination of who is to be favored is certain to raise grave problems for the future. At best the operation is likely to create greater inequalities and more irrational inequalities than now prevail.

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Inequalities within the favored groups are bound to lead to endless demands to expand the inclusiveness of the activities. The liability for 200,000 units today becomes one for a million units tomorrow. But the demands for expansion of the Federal involvement do not end here. Where one group has a special advantage, another group, if it has comparable political strength, is certain to demand, and likely in the end to receive, comparable treatment. If middle-income persons buying homes as members of a cooperative association are deserving of a 3-percent interest rate, as the HHFA Administrator promises to deliver under this new plan, then middle-income families buying as individuals will, quite understandably, demand the same and, if it is good for them, why is it not good for farmers also ? There is no stopping place to such expansion once it is under way.

Recognizing this danger, Mr. Robert H. Winters, Minister of Reconstruction and Supply in Canada's Liberal government, had this to say in Parliament when, last October, an issue similar to this one confronted his country: "Representations have been made that the rate of interest, payable by cooperatives or by individuals who have built their houses under cooperative schemes, should be less than the rate of interest available to home owners. As will be clear to honorable members this point of view cannot be accepted.

It does not seem reasonable to us that individuals with a proprietary interest in the house in which they live should be afforded better terms under a cooperative than if they arranged the financing of their houses on an individual basis. The government deems it unwise to create such differential.”

In conclusion, it is evident that the volume of housing is being expanded as rapidly as is consistent with an avoidance of renewed inflation. The end of the price drop sometime last fall and the steady level of costs during the past several months are testimony to this fact. The new measure, therefore, could not add to the volume of housing otherwise likely to be built without threatening a price rise for all. Nor is it possible that the new measure could materially alter the distribution of the expected volume of housing during the present year or for several years to come. It cannot, in other words, accomplish its announced objectives.

The measure can, however, seriously interfere with the orderly development and expansion of the market now under way by promising an incalcuable kind of competition—very much as the provision of yield insurance 2 years back appears to have influenced the virtual cessation of independent housing investment by insurance companies. Moreover, the proposal is certain to intensify demands for more extensive and even more generous forms of Government intervention. And it is certain also to add strain to a badly unbalanced budget. There is nothing in the current housing situation that justifies incurring the risks that are inherent in this bill.

NEW YORK, N. Y.

January 18, 1950. Senator John SPARKMAN, Senate Banking and Currency Committee,

Washington, D. C.: We wish to go on record as strongly opposing the provisions contained in Senate bill 2246 for direct loans to veterans, the creation of national cooperative housing association and the repeal of section 505A of the Serviceman's Readjustment Act. Mortgages constitute the chief source of income of savings banks, savings and loan associations, and the life insurance companies. The entrance of the Federal Government into this field would be a catastrophe, since it would be a direct attack on the security of the savings of depositors and policy holders of these institutions and to the individuals—the citizens of this country who practice thrift. The opposition to these objectionable features is that the present laws governing title 1, if extended as proposed, would more than take care of

lowest-income brackets in your proposal. Under title 2 of Federal Housing Act are provisions, both under section 203, B 2 D and section 203B, for the housing of this group. Rentals are and have been adjusted by area under title 6, section 608, and these rentals have been lowered as of November 1 on all new applications.

National Cooperative Housing Association financing in the proposed law will result in more deficit financing, with its incumbent attack on thrift. This attempt to subsidize the so-called middle-income group, which is a definite misnomer, is entirely unnecessary, unwarranted, and uncalled for, because financing is available to all citizens within the brackets they can afford. The Government is not expected to create luxury housing, and the passage of these amendments would do just that for the benefit of a specific class already covered under the

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