STATEMENT BY PHILIP SCHIFF, CHAIRMAN, NATIONAL PUBLIC SOCIAL POLICIES COMMITTEE OF THE AMERICAN SOCIAL WORKERS

The American Association of Social Workers represents 13,000 of the Nation's outstanding social workers in the country. Its membership comprises the largest professional association in the field of social work and is located, through its 120 chapters, in practically every State of the Union and in Hawaii and Puerto Rico. Our association represents a cross section of the total field of social work at all levels of operations in both public and private agencies.

Our total experiences have long ago established for us the fact that the problems of providing good housing for American families is a basic essential of wholesome living. The stability of the family in the community cannot be attained without it. Our membership which daily comes into contact with those segments of our population which require social services of one kind or another and which has developed over the years a very high level of competence in dealing with such problems has enunciated certain goals and principles in connection with housing which are not abstract or theoretical. They embody living experiences which encompass human needs that cannot be ignored if the American way of life is to continue to be a reality for millions of American families who constitute the backbone of this Nation.

We have carefully examined S. 2246 and see in it at least a partial answer to the housing needs of that portion of our population which is not eligible for low-rent housing and cannot afford to buy homes at prevailing prices. We are heartily in favor of title III of the act which would enable large numbers of American families to help themselves, via the cooperative idea, to establish for themselves the kind of wholesome family life which would guarantee a decent upbringing for their children, who as future citizens will appreciate and devote themselves to furthering the democratic way of life. For them, there would be a real escape and sense of freedom from those conditions which now surround them in terms of crowded, unsanitary, and juvenile-delinquency-breeding areas. Furthermore, we heartily approve the methods which would make it possible for middle-income groups to obtain decent homes without a Federal subsidy. It is our sincere belief that this great area of our population will strive mightily to make such a program succeed because they constitute the kind of people who will take on a missionary zeal in the fulfilment of this housing plan, since they know their Government is behind them while at the same time making it possible for private capital to participate up to the hilt in financing these projects. We are convinced that the Senate of the United States has a great challenge before it in S. 2246. We hope it will accept it without equivocation because the seeds contained in this legislation will surely blossom forth into the kind of beauty and gracious living of which America will be justly proud.

Senator SPARKMAN. Let me ask: is Mr. Clarke here?

Mr. CLARKE. Yes.

Senator SPARKMAN. Mr. Weitzer ?

Mr. WEITZER. Yes.

Senator SPARKMAN. Is there a representative of the American Legion here?

Yes; they are present.

Senator SPARKMAN. The VFW. He has submitted a statement.

He will be back.

Mr. Wilson?

Mr. WILSON. Yes.

Senator SPARKMAN. We are going to recess now until 2 o'clock. The meeting at 2 o'clock will be in room 39 of the Capitol, on the ground floor.

(Whereupon, at 1:30 p. m., the meeting was recessed, to reconvene at 2 p. m. of the same day.)

AFTERNOON SESSION

Senator SPARKMAN. Let the committee come to order, please. Mr. William A. Clarke, will you come around?

STATEMENT OF WILLIAM A. CLARKE, REPRESENTING MORTGAGE BANKERS ASSOCIATION

Mr. CLARKE. My name is W. A. Clarke. I am here representing the Mortgage Bankers Association of America.

First, we have proposed five amendments to be made to S. 2246 in changes of that proposed legislation. The first one that we are proposing is one that would, in our opinion, permanently settle the question of interest rates on Government-insured mortgages, both FHA and VA. The present untenable position of varying interest rates on Government-insured mortgages which are left in the hands of varying individuals in the administrative body of the Government to set, we think, is wrong. We feel that the interest rate should vary with the supply and demand for money and that in turn that probably could be set up by some formula. We have suggested a formula which would tie the interest rate for Government-insured mortgages to the rate, if you will, of long-term Governments.

That is not necessarily the proper formula and we have no particular brief for the formula. The point that we would like to make is that we feel that there should be some formula.

If we use the formula that we have established we would come up with what seems to be generally conceded in the business to be a satisfactory rate or a proper rate that would end up at about 44 percent. Those are two amendments and there have been submitted to you our drafts of that type of legislation.

No. 2 that we would like to propose is the formation and the addition to the proposed legislation of permission to form private national mortgage associations. Private national mortgage associations with a part of the original housing legislation of 1935, as I remember it, and it was never used because the Government took up one charter in the form of Fannie Mae, and that was the Federal National Mortgage Association, and that was it.

We have the feeling that if that legislation were to be implemented again and with a change, if you will, or a formula for interest rates which would constantly keep the VA and the FHA mortgage in the market that the private forces of the country and the private banking of the country could and would absorb all of the mortgages that are created both by FHA and by VA and thus eliminate the present primary market of Fannie Mae, which is a heavy drain on the Federal Government. We are proposing that kind of legislation be enacted.

We have several other suggestions to make in connection with this work. One of them is already in the bill, but we suggest a slight change to it, and that is one which directs or permits the Federal Housing Administration to handle the processing of loans in the earlier stages of the building operations. The present one authorizes the FHA to do it and we have given one slight change to that in the matter of setting a maximum fee in connection with it, which is not now a part of the legislation. It is our opinion that some maximum should be set that FHA could charge, because otherwise it is possible that

those charges might become burdensome and we feel that there should be some maximum attached to them.

The next one is one that we think would very much simplify the VA program, and that is having the VA mortgage made so that it could not exceed the appraisal. It would have nothing whatever to do with the sale price of the house.

The original VA legislation which would not permit the veteran to pay more than the appraisal, we feel, was a necessary one at that particular time. The flow of housing now is at such a point that we feel that is no longer necessary. The reason we are suggesting it is not a question of what might be considered to be price control on that, but to eliminate much of the difficulty which is now experienced by a person purchasing under the VA program. By illustration, let us take the case of a veteran who is proposing to buy a house and has been approved by the Veterans' Administration for the purchase of it and the house is under construction. His wife comes along and wants three electric sockets put in three different closets. There is an extra of $10 per light socket which throws it $30 above the approved VA price. The builder and the mortgagee in that case all have to go back through the VA for a reprocessing of that particular situation and have it end up in another appraisal fee which costs, to my recollection, about 25 percent of the cost of these three electric-light outlets for just the difficulty of the reprocessing.

The second one is that if that were done we believe that there could be a simplification of the appraisal procedures by the Veterans' Administration in which they in turn could use, if they wished to do so there is nothing_compulsory about it-the appraisals established by the Federal Housing Administration. We think there would be a very decided advantage to the veteran by that process. No longer do we believe that it is necessary for these things to have control.

That is roughly our suggestion in connection with changes in the legislation which is now in existence, or additions to it.

We would also like to testify in connection with some of the items currently in the bill. No. 1, there is called for the elimination of section 505 (a) in the veteran's mortgage. If Congress sees fit to accept a formula for interest rates we believe that section 505 (a) can be readily eliminated. If it does not, we believe that it would work a very decided hardship on a great many veterans in spots where the 4-percent money is not now available to them, and would therefore have to resort to the so-called 505 (a) section.

We are opposed to the proposal in the bill of Government direct lending to veterans, and it is on that basis that we are proposing that a national mortgage association or associations be set up.

There is one other addition to this bill that we suggest and which I almost neglected. That is that at some time, given time enough to determine whether the new private national mortgage associations could operate or not, the present operations of Fannie Mae be restricted to that of a secondary market, and that it be made very much more difficult for the private individuals or institutions to sell loans to Fannie Mae. We would require, for example, that the mortgage be in existence for 6 months or a year, and that they be sold to Fannie Mae at a discount of, say, 99 or something of that sort. It would

be put there as a relief spot rather than being a primary market at the present moment for the absorption of these loans.

I would like to also testify in connection with the proposed housing cooperative end of the proposed amendments of Mr. Maybank. In the first place, I should like to make the preliminary statement that the Mortgage Bankers Association in no sense of the word is opposed to cooperatives. As a matter of fact, I personally am in the position at the moment of being chairman of a committee of the American Friends Service Committee in Philadelphia, in which we are working with the redevelopment authority in the city of Philadelphia for a cooperative in which we are proposing that it would be used for slum elimination in Philadelphia. We think we have a very interesting experiment which will soon be under way.

I would like at the same time to refute, as far as my own personal experience is concerned, the statements made by the first witness this morning, that he had had great difficulty with cooperatives with FHA. In this particular case it is proposed that it would be financed under the FHA program, and to the reverse of that we have had great cooperation and they have done everything that I think they could possibly do to be helpful and cooperative in this case.

I mention that because I have the personal feeling, and I feel this is the situation with the Mortgage Bankers Association, that the proposals in this legislation in which the Government would offer assistance in the formation of cooperatives, we believe, would be useful. I am speaking now from personal experience in this operation in Philadelphia, on which there is really very little in the form of literature or very little in the form of proposed corporate set-ups and what-not on which we can draw. I confess that many of us are feeling our way along with it. It would be, in our opinion, helpful to have some spot in the Government where that kind of thing could be done. We have the feeling in our minds that as far as the rest of the legislation is concerned there is some question about it. I would like to particularly talk about the matter of the sale of the securities of the so-called cooperative to the public.

There is nothing in the bill which states the time of the debentures that are to be sold. The security in back of them would be for a 50year term and there is nothing there which would prevent them selling, if you will, very short-term securities, because they can move them here or there and the interest rate would in turn vary depending upon the length of the securities, We have the feeling that if there are securities to be isued they should in some way or other be tied to the length of the security which is in back of them and that there should be some basis of operation of that kind.

We think, in addition to that, that the term of these loans is too long at 50 years. If you look at the housing built in the United States in the year 1900 you will find that most of it is not very desirable housing at the moment and is not particularly usable and we have the feeling that it should be reduced materially as to term.

Next is the question of whether in setting this thing up you are not setting up a very special class of citizen which might affect our current business. I am perfectly willing to admit that we are now taking a selfish interest in connection with this matter. That comes about in this way: The life insurance companies, the savings banks, the building and loan associations of the country are geared up and are now

handling the mortgage loans of the so-called middle-income families. We feel they are doing a very competent job of it. This legislation, we believe, will remove from the market that type of mortgage for the so-called legitimate investor in mortgage loans. He is interested in the purchase of mortgages. Every one of them now have a portfolio that is almost too full of Government bonds. What is proposed here would be a Government bond. We feel that this is class legislation which gives a chance for a rate of interest which will take away from us the opportunities to invest money in mortgages, which in turn will have its effect on the dividends paid by life insurance companies, dividends paid by savings banks, building and loan associations, and others.

The third objection that we have is in the assistance that is proposed in this bill. It is proposed that the Government will pay all of the advance costs of planning up to the extent of 3 to 5 percent, that the cash required by the cooperative group be 22 percent. We feel that that is not enough. In addition to that we feel that it offers the possibility for a rather speculative bonanza on the part of a number of people. I can conceive of a situation as I read this proposed amendment where I, as an individual, could very readily acquire 50 people who might be willing to be cooperators if I could show them that they could reduce their carrying charges from those of a present FHA mortgage of about $5.96 per month per thousand to a little over $3 per month per thousand. Once I had them signed up, we would then proceed to plan this operation.

We would employ the necessary architects and the necessary engineers, all of whom are going to be paid regardless of whether it goes through or not. After we had produced the necessary plans and engineering drawings at the Government's expense and the cooperators liked it, well and good, it could go ahead. If they did not, it could be dropped. It seems to me there should be some form of security provided for any advances that the Government might make on that

score.

As a promoter in connection with this kind of plan, if only 212 percent is required, if we are going to have the normal profit of the builder and of the architect, there is not very much reason why either the architect or the builder should not put up the 22 percent for the cooperators and they in turn would be in a position to go on without having put up anything. We feel definitely that if you and I, as private owners of property, are required on the best credit that is now offered by the Government to make a 5-percent down payment, this should require the same thing. We feel that should be done after the cooperative has done its preliminary work and not on the basis that the Government has paid for that preliminary work. If they are not sufficiently interested to put up a little money, otherwise, I feel it would fall into decidedly speculative hands.

Those are roughly our proposals. I would like to answer any question you may have, Senator.

Senator SPARKMAN. Thank you, Mr. Clarke.

First, let me ask you a few questions about this cooperative that you are helping to get started in Philadelphia. When did it start?

Mr. CLARKE. We got the possibility started about a year and a half ago.

Senator SPARKMAN. You organized it about a year and a half ago?