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We concur in the provisions of the Housing Act of 1954 relating to eliminating the need of a mortgagor to certify on refinancing a mortgage, the adjustment of fees in foreclosure, the 10-year maturity provision for FHA debentures, and the annual insurance authorization for FHA, as provided by sections 107, 111, 112, and 121, respectively.


We favor extending authority of FHA to insure loans under section 207 of the National Housing Act on existing rental multifamily structures in community slum or blighted areas where part of the proceeds are used to repair or rehabilitate the property, as provided by this bill.


We see no objection to increasing the top limits of FHA-insured loans on cooperative housing projects, as proposed by this section of the housing bill; providing that these limits should not exceed those provided under the rental housing program, except insofar as they provide preference for veterans.


While approving in principle the need and desirability of urban renewal programs, the use of FHA insurance for this purpose needs very careful consideration and should be segregated to an individual insurance fund to support the entire risk. Insurance funds underwriting the risk on residential properties under other sections of the National Housing Act should not be commingled with slum-clearance and welfare housing programs. These types of loans have unusual risk, and their terms and conditions should reflect it.

We are opposed to the provisions contained in the proposed new FHA section 221 for insured loans to low-income families for 40-year loans with little or no downpayment.

The only possible attraction for a mortgage investor to this type of loan is the insurance protective feature, which is not sound justification.

Mortgages should be made to stand or fall on their own merits with insurance only as a secondary factor. Forty-year loans, even with the opportunity to convert into debentures at the end of 20 years, would of necessity depend heavily on the insurance factor for their marketability and are unsound in principle.


We are opposed in principle to the addition of open-end mortgage contracts for FHA loans. There may be situations where the funds are used for capital improvement purposes which would be helpful to a borrower, but the way is opened for use for consumer credit purposes.

It is our belief that equities in real property should not be used as a means of extending the debt further, which delays true ownership of

a home. An open-end mortgage arrangement, unless very carefully controlled, can serve as a means for keeping the homeowner constantly in debt.


Simplifying the National Housing Act by terminating FHA title VI loans to finance fabricated housing, title VII yield insurance provisions, title VIII loans on military housing, and title IX defense housing loans has our approval.


Under the Housing Act of 1954 the President is given exceedingly wide latitude in the control of housing credit, which in turn can influence the volume of home construction if he determines it to be necessary. He can fix interest rates on FHA-insured and VA-guaranteed loans, determine adjustments in fees and charges, and direct the extension of Government credit through the new mortgage-marketing corporation.

To the extent that this authority provides a means for flexibility of interest rates on insured and guaranteed loans within specified limits and provides for an adjustment of fees and charges in connection with originating and servicing of loans in small communities and remote areas, we approve and believe that many of the ills of the past would be corrected.


If interest rates were to be permitted to adjust to the supply-anddemand factors of a free market, there would be no need, in our opinion, for any form of Government-supported secondary market facility, as private financial institutions would meet all reasonable demands for home financing through an adequate flow of investment funds into mortgages.

The discretionary authority given the President to adjust interest rates and fees and charges, if exercised in a manner that recognizes area differentials, would stimulate the flow of funds to those areas where demand may exceed supply and thus make the continuance of the Federal National Mortgage Association unnecessary except for the purpose of liquidating its present mortgage portfolio in an orderly


We believe that, at the present rates on FHA and VA mortgages, private investors will supply all funds needed to maintain a sound volume of home construction and that a Government-supported secondary market will tend to overstimulate building, leading to an overproduction of residential properties.


We have long felt that a mutual mortgage-insurance system such as the Federal Housing Administration should be an independent agency and not grouped with other agencies organized for different purposes or subject to policy control by a superior agency. It should be free

to establish policies consistent with sound insurance practices. We urge Congress to give consideration to restoring the FHA to a completely independent status.

That completes my statement, Mr. Chairman.

The CHAIRMAN. Are there questions of Mr. Reilly?

Mr. PATMAN. Mr. Chairman.

The CHAIRMAN. Mr. Patman.

Mr. PATMAN. Mr. Reilly, you heard me ask the preceding witness about the 212-percent spread, did you not?

Mr. REILLY. I did, sir.

Mr. PATMAN. Do you agree that the spread heretofore has been 112 percent?

Mr. REILLY. I do not.

I have never heard of it.

Mr. PATMAN. You have never heard of it?
Mr. REILLY. No, sir.

Mr. PATMAN. We had testimony here the other day from a gentleman who represented the Veterans' Administration, and he said that 12 percent was the customary spread; that is, the margin differential between the long-term Government yield and the mortgage rate. What has been the rate, then, Mr. Reilly?

Mr. REILLY. The rates have ranged anywhere from 4 to 5 percent. Very often the rate on Government bonds, long-term rate, has been 212 percent.

Mr. PATMAN. Two and a half percent?

Mr. REILLY. Yes, sir. Three and a quarter recently.

Mr. PATMAN. You don't agree that one and a half has been the traditional margin?

Mr. REILLY. I do not, and I do not believe that one and a half is appropriate margin now.

Mr. PATMAN. You do not think it is sufficient?

Mr. REILLY. No, sir; I do not.

Mr. PATMAN. I notice on page 3 of your statement that real-estate loans totaled $12 billion. How much of that was in FHA or other guaranteed paper, Mr. Reilly?

Mr. REILLY. I do not know that I can answer that, Mr. Patman. We do not have it here. We would be glad to supply it.

Mr. PATMAN. Well, was a major part of it or a minor part of it? Mr. REILLY. I would think a major part of it, sir.

Mr. PATMAN. The banks don't generally take paper that isn't guaranteed one way or another by the Government, do they, Mr. Reilly? Mr. REILLY. Oh, yes, I think a great many banks have taken conventional loans and have preferred them.

Mr. PATMAN. For what length of time?

Mr. REILLY. Under the Banking Act we cannot make them over 10 years and we have to get 40 percent back in before that 10 years. Mr. PATMAN. And that is in the savings department?

Mr. REILLY. Yes.

Mr. PATMAN. In this you represent the American Bankers Association, don't you, sir?

Mr. REILLY. That is right.

Mr. PATMAN. Do you know a man by the name of Wendell T. Burns?

Mr. REILLY. Yes, sir; I know him very well.

Mr. PATMAN. Last year, June 22, 1953, he was before this committee, and I brought out the point-he was suggesting that the banks were not faring too well, or something along that line, and I brought out that the Government is out about a hundred million dollars a year clearing checks for the privately owned commercial banks, and I said "Now, is that complete subsidy? Are you in favor of that?" That is in the hearings on the housing amendments for 1953. [Reading:]

Mr. BURNS. Offsetting that, the Federal Reserve has these reserves deposited with the Federal Reserve banks.

Mr. PATMAN. But they can't use them.

Mr. BURNS. They invest them in Government bonds.

Mr. PATMAN. You are mistaken about that. You are getting off now. That is not accurate. You can't invest reserves of the Federal Reserve banks in Government bonds. They have no reason to invest reserves.

Mr. BURNS. Well, we are getting quite away from mortgages, but the FederalMr. PATMAN. I know, but we are on subsidies. You mentioned the subsidy matter in your statement as being against all subsidies.

Mr. BURNS. All right. The Federal Reserve Board, however, does invest its surplus funds in United States Governments.

Mr. PATMAN. Oh, no; the Federal Reserve banks?

Mr. BURNS. Sure.

Mr. PATMAN. Why, of of course not. They can't invest these reserves. They have got to be kept right there intact, and they have no power to invest them. None. You are wrong about that, my friend. The Federal Reserve banks trade printed money-Federal Reserve notes-for the Government bonds they buy. In other words, the money is created by the Federal Reserve banks for that purpose. It is done under their power to create money.

You represent the great American Bankers Association, but they had better get you straight because you are wrong about that.

Now, then, I asked Mr. Burns to file a statement and correct that, but he never has done it, and I want to ask you, as representing the American Bankers Association, to file a statement about this. In other words, is it the policy of the American Bankers Association to tell the people, in educational campaigns, or otherwise, that the Federal Reserve banks are using the reserves of the commercial banks in buying United States Government bonds? Because I believe that that is incorrect, and I think it ought to be clarified. And I want to ask you, representing the American Bankers Association, to clarify that point in your testimony.

In other words, admit that Mr. Burns was wrong, or claim that he was right, and state why you believe he was right. Will you do that, Mr. Reilly?

Mr. REILLY. Mr. Patman, my testimony this morning was limited to the provisions of the housing bill. I am not prepared to discuss that, and I cannot speak for ABA on it.

Mr. PATMAN. That is the reason I asked you to file a statement. Mr. REILLY. I will be glad to pass that on to the ABA authorities. Mr. PATMAN. Will you do that, get a statement from the ABA on it and file it?

Mr. REILLY. I will pass your request on to them, sir.

(The data referred to was not received in time for printing in this volume.)

The CHAIRMAN. It is understood that you are to pass the request on to the American Bankers. So if the statement does not come inMr. REILLY. It will be their decision, not mine.

The CHAIRMAN. The American Bankers Association and you, as far as I am concerned, may decide that that question is not germane to

this study, and at some other time we might have it before us. But I hope to confine these hearings to matters which are germane to the subject of housing.

Mr. REILLY. That is what we tried to do in our testimony, Mr. Chairman.

Mr. PATMAN. But the American Bankers Association cannot afford to have a statement out that is wholly false and untrue. If a statement has been made by their representative which is wholly unfounded and untrue, the American Bankers Association should be the first to want to come in and correct it because I don't think the association wants to mislead the people or this committee.

The CHAIRMAN. I assume if they want to make a statement they can do so, but I doubt if this is the time and place to make it, when we are discussing the housing bill. When we take up, if we ever do, the question of creation of money, or something along that line, it might be germane to that subject, but I cannot see how that subject is germane to housing.

Mr. PATMAN. Well, I want to call on the American Bankers Association for that statement and put it in as part of this gentleman's statement.

The CHAIRMAN. If they see fit to do so, that is up to them.
Mr. PATMAN. I hope the gentleman doesn't persuade them not to.
Mr. BETTS. Mr. Chairman.

The CHAIRMAN. Mr. Betts.

Mr. BETTS. At the bottom of page 6 of your statement, Mr. Reilly, you comment about the fact that farmers should have equal opportunity for home financing. What are your views on that?

Mr. REILLY. As I understand it, sir, the farmers have a number of agencies from which they can get credit, and they used the FHA facility to a very negligible degree, and for that reason it was recommended that it be eliminated. But the ABA wanted to be on record as saying that the farmers should have the same protection as anyone else, and we were only going along with that because Mr. Hollyday had stated in his testimony that it was not being used. I think he said six loans were all that were had under the section. That is our position.

Mr. TALLE. Mr. Chairman.

The CHAIRMAN. Dr. Talle.

Mr. TALLE. Will you yield, Mr. Betts?

Mr. BETTS. Yes, sir.

Mr. TALLE. I just want to make the observation at this point, that the initials FHA are confusing, because on the one hand they may represent the Federal Housing Agency, and on the other hand, the Farmers Home Administration. In each case the initials are FHA, and a person has to make clear which he is referring to.

Mr. REILLY. I was referring to the Federal Housing Administration, Dr. Talle.

Mr. TALLE. I realize that.

Thank you, Mr. Betts.

Mr. BETTS. I am interested in your comments on the open-end mortgage. Would you approve of it if there were some limitation put on the amount?

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