standing between the Federal Reserve and the banks. Although the banks don't borrow from the Federal Reserve, when the Board lowers the rate; they ease up.

Mr. MASON. Unfortunately, Mr. Patman, I am not Secretary of the Treasury, and I am not really competent to discuss that matter fully. Mr. PATMAN. I am asking a fellow from way back in the grassroots. I will bet you make a lot of these loans. How many of them did you make last year?

Mr. MASON. Well, I don't make loans, sir.

Mr. PATMAN. Well, I mean, though, you service them, through the banks, title I loans?

Mr. MASON. In New England, sir, we are not very dependent on FHA money. We have savings banks.

Mr. PATMAN. You have money outside of that?

Mr. MASON. Yes, sir.

Mr. PATMAN. I see.

Mr. MULTER. Mr. Chairman?

The CHAIRMAN. Mr. Multer.

Mr. MULTER. Mr. Mason, I notice that you indicate that extension or continuance of FNMA, and setting up of this secondary mortgage market, will be of help to the rank and file of American citizens in fastgrowing areas such as the West and Southwest.

As I understood the operation of FNMA, that did not help those people at all. All that did was to take the mortgages off the hands of the lenders in the big communities, where all the capital was, and give them more capital with which to operate.

Mr. MASON. You are correct as to the past operations of the Federal National Mortgage Association, which is why we are in favor of doing away with the old Federal National Mortgage Association, liquidating it, as this bill provides, and setting up a new one, to really serve the people of America.

Mr. MULTER. Well, tell me, I am very much interested: How is the new one going to serve these areas that are not now getting any capital? I want them to get the capital. Show me how it is going to happen.

Mr. MASON. So do I, and so do hundreds of other small-town people who are interested in chambers of commerce around the country. That is what they tell us. The man in Missoula, Mont., area, which is growing and which does not have capital, their banking organization, if they have one, has limited capital, and yet they have a lot of people who want to borrow money. If we had a proper secondary mortgage market opening as we hope it would, this secondary market would buy from that bank the mortgage that it makes to the individual in that area and sell it to somebody in New York, or to some insurance company, some pension trust, some large reservoir of capital, which this man, being a small man, cannot spend his time to approach and won't spend his time to approach.

Mr. MULTER. If I understand you, we are in agreement that some organization should be set up to help that situation. I have studied the bill very carefully and have followed Mr. Cole and his staff in their testimony. I would like to have you point out what there is in this new bill that is going to accomplish that purpose that you and I think ought to be accomplished.

Mr. MASON. Well, this new secondary mortgage market facility should work that way, provided this 3-percent charge is not made, which will discourage the small banker from taking over.

Mr. MULTER. Well, now, wait, the 3-percent charge is a one-time 3-percent charge on the face amount; is that right?

Mr. MASON. That is right.

Mr. MULTER. With the elimination of that charge

Mr. MASON. We don't eliminate it, we simply say that he will be able to get his money back when that loan is sold. We believe that this bank should not take advantage of this secondary market, if he has other facilities. We are not setting up something to transfer the whole loaning business. We just say there should be a penalty for his using it, but it should not be a penalty where he has that money tied up forever.

Mr. MULTER. Do you think that the refund of that 3-percent charge is going to bring that money, the capital, into those smaller communities?

Mr. MASON. I believe that this secondary mortgage market, working in this way, without this 3-percent charge, would bring the money to these small communities.

Mr. MULTER. I don't see how it is going to be done.

Mr. MASON. Well, I spent a great deal of time investigating this, and talking with people, and it is our opinion that it would do that, sir. I spent about three times exploring this particular feature and means of getting help to the small towns of America.

Mr. MULTER. I hope you are right. I don't see it being accomplished that way, though.

Thank you, sir.

The CHAIRMAN. Are there further questions of Mr. Mason?

If not, thank you, Mr. Mason.

Mr. MASON. Thank you, sir.

The CHAIRMAN. We have next Mr. John A. Reilly, president of the Second National Bank of Washington, D. C.

We are glad to have you, Mr. Reilly. You may proceed.

Mr. REILLY. Thank you, Mr. Chairman, and members of the committee.

STATEMENT OF JOHN A. REILLY, ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION

Mr. REILLY. My name is John A. Reilly. I am president of the Second National Bank of Washington, D. C. I am also a member of the committee on Federal legislation of the American Bankers Association and chairman of its subcommittee on mortgage financing and urban housing. It is in this capacity that I appear here today to express the views of the American Bankers Association on the proposed Housing Act of 1954, H. R. 7839.

In general, we are in sympathy with the objectives set forth in the bill. It sets high goals for community betterment and improvement of home conditions in areas of need. It gives recognition to the value of the country's vast investment in existing homes and the need to preserve them. Consideration is given to the need for maintaining an adequate supply of new homes; to assisting all persons regardless

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of race, color, or creed to have equal opportunities for adequate housing, and to assisting low-income families in their housing problems. It recognizes the principle of flexible interest rates and fees and charges to assist in providing an adequate flow of mortgage credit. It provides a more efficient mortgage insurance program through simplification and elimination of unnecessary provisions in the National Housing Act.

Although recognizing the importance of the slum clearance and urban renewal program set forth in title IV of the bill and the changes in existing statutes proposed in subsequent titles in connection with the overall national housing policy, we are directing our testimony to the first three titles of the bill, all of which relate to mortgage credit. We approve generally the changes in the National Housing Act in title I of the bill which are designed to streamline and simplify the mortgage insurance program, such as (1) the transfer of the section 8, title I, small home loans to and its integration with section 203 loans; (2) the equalization of terms of insured mortgages on existing homes with those on new homes; (3) increasing the maximum limits on amounts of FHA mortgages, among others. Our views on these changes will be discussed in more detail later on in this statement.

However, there are other provisions of the bill to which we are opposed. Some of the methods proposed for achieving the objectives mentioned above do not conform with our interpretation of the basic national housing policy as expressed in the President's housing message and in the report of the President's Advisory Committee on Government Housing Policies and Programs. For example, instead of encouraging private enterprise to assume greater responsibility in meeting housing and home-financing needs without Government support or assistance, certain provisions of the bill involve the Government more deeply than ever in the housing and home-financing field. A housing emergency does not now exist. The great volume of mortgage credit which has been extended for home construction and the large number of new homes that have been built in recent years, all indicate that now is a time for Government participation in this field to be reduced rather than enlarged.

Savings funds are traditionally a primary source of mortgage investment capital. In the years following World War II savings have increased rapidly and financial institutions have invested these funds heavily in the mortgage market. In 1945 commercial banks had total savings and time deposits of $30,155,000,000 and their realestate loans totaled $4,772,000,000. By 1953 total savings and time deposits in the commercial banks had grown to $43,430,000,000 and their real-estate mortgages to a total of $17 billion. In 1945 mutual savings banks had total savings deposits of $15,385,000,000 and total real-estate loans of $4,279,000,000. By 1953 total savings deposits in the mutual savings banks had grown to $24,387,000,000 and their real-estate loans to a total of $12,799,000,000. Thus, the investment in real-estate mortgages by both commercial banks and mutual savings banks during these years more than kept pace with the growth in their savings deposits. The same is true of savings and loan associations and life insurance companies.

In view of the growing participation in the mortgage business by private lenders and the filling of the emergency demands for housing,

the time has now come when it is appropriate for the Government to curtail its activities in the housing and home-financing field. If the theory is correct that Government assistance is sometimes needed to support the economy during a time of stringency, it certainly follows that the Government should withdraw its support when the need has been filled.

By the terms of the bill, and as implied in the President's message, it is the intention of the Government to maintain and even raise the present level of home building and to assure the means of financing it. Caution should be exercised in this regard for it can result in developing a program of home building beyond that necessary to satisfy a real need for homes or of the available credit means from private enterprise sources to safely finance such programs. It is true that home construction requires the services of labor, absorbs materials and supplies, and helps to create new markets for home furnishings, appliances, and conveniences. But it is not sound business to stimulate these processes beyond the ability of our economy to support. The first proposal in title I of the bill relates to extending the amount and maturities of FHA title I loans for home modernization, repairs, and improvements. We see no objection to increasing the dollar amount of the home modernization credit limitation from $2,500 to $3,000 in class 1 (a) loans, but are opposed to increasing the maturity beyond the present 3 years and 32 days.

Expenditures for materials and supplies going into home repairs and improvements should generally be financed over a short period of time in the same manner that the purchase of other consumer durable goods are financed, for otherwise the whole credit base of the country is weakened. During recent years the banks have been making every effort to hold the line on maximum terms of consumer credit. If an expansion of terms of FHA title I loans is permitted it will inevitably bring pressure to bear for term expansion on other types of consumer credit loans, which we believe would not be sound for the consumer, the lender, or for the economy.

If the repairs, alterations, or improvements to the property are in the nature of long-term capital improvements, as distinguished from loans for ordinary wear and tear, longer-term loans, in larger amounts may be justified, but they should be secured by mortgage. With regard to class 1 (b) loans, it is our opinion that the present $10,000 loan limit and maximum term of 7 years, 32 days should continue unchanged for properties of 2- to 4-family units.

With regard to the rehabilitation of larger properties designed for more than 4-family units, we see no objection to raising the maximum amount to $10,000 per structure, or $1,500 per unit, whichever is greater, and for a maximum term of 10 years provided security in the form of a real-estate lien is required and that prior credit approval is obtained from the FHA.

FHA SECTION 8, TITLE I LOANS, SECTION 103

We are in favor of transferring the program for insurance of loans to finance small-home construction from title I to title II of the National Housing Act. Title I is designed primarily for the insurance of unsecured consumer credit loans. It is entirely proper that

the small-home construction program of section 8, title I, should be transferred to and integrated into section 203 of title II, thus consolidating it into the general FHA mortgage insurance program.

INCREASED LIMITS FOR FHA LOANS, SECTION 104

We support in general the restriction of credit to sound economic principles. Changing values in recent years, however, have occurred, and we therefore recognize the desirability of increasing maximum limits on amounts for FHA loans on 1- to 4-family dwellings as provided by the bill.

EQUAL FHA INSURANCE ON NEW AND EXISTING HOMES, SECTION 104

Within reasonable limits there should be some equalization of FHA credit on new and existing homes. However, we endorse the thinking expressed by HHFA Administrator Cole:

The FHA should not permit a maturity in connection with an existing house which is higher than warranted by the physical condition and expected economic life of the particular house involved.

To assure this objective we recommend that in no event should the loan on existing construction exceed 25 years.

THIRTY-YEAR MATURITIES ON FHA LOANS, SECTION 105

A primary reason for lengthening maturities on mortgages is to reduce the monthly payment. From the builders' or dealers' viewpoint this is very important, for it helps to sell houses. A 30-year $10,000 mortgage at 412 percent requires monthly payments of $50.75 to meet payments for interest and principal. The same loan for 25 years requires $55.60 a month, and for 20 years it requires $63.30 a month. A prospective buyer of real estate is naturally more easily attracted to the $50.70 payment, and it influences his decision as to the size of his investment and whether he would buy that house in lieu of another in which more conservative financing terms are required. Actually, however, the longer maturity is not necessarily the best loan for the borrower. If a loan of $10,000 was repaid over a 20-year period instead of a 30-year period, the borrower would save 10 years of interest charges.

To foster sound credit and strength in our national economy, a 25year mortgage for larger loans is enough. The property owner must have some equity in his property to make the credit economically sound. In this period of high production of homes and very high prices for real estate, it is not desirable to provide longer-term loans and even more liberal terms.

TERMINATION OF FHA LOANS ON FARMS, SECTION 108

It is proposed to eliminate FHA insurance on farm housing loans now provided by section 203 (d) of the National Housing Act. Commissioner Hollyday has stated that the reason for terminating this provision is because it has been practically inoperative in the past. In view of the stated reason, we see no objection to terminating this provision. We believe, however, that farmers should have equal opportunity with all others for proper home financing.