Mr. MCDONOUGH. It has everything to do with it.

Mr. MULTER. You are saying a man earning $10 a month can go into the project. I agree. But he has to pay $40. So charity has to pay his rent. What has that to do with this problem? We used to send them to the poorhouse. It has now been decided as a matter of good social planning and good government that we should not have people living in poorhouses.

Mr. MCDONOUGH. Not in poorhouses, in private homes.

Mr. MULTER. That is what your public housing is trying to do.

Mr. MCDONOUGH. Before the public housing ever existed they were contracting for private homes.

Mr. MULTER. That does not change the problem.

Mr. MCDONOUGH. It was taking care of them and we did not need public housing on the part of the Federal Government.

Mr. DEANE. Will you yield, Mr. Multer?

Mr. MULTER. I yield.

Mr. DEANE. Getting back, Mr. Reilly, to a question asked a moment ago about the adjusting of the interest factors, region by region, where do you think the interest rate would be the highest?

Mr. REILLY. Well, at the very highest, it is about the 15-year average on Government maturities, and I would say that that would be less than 3 percent, possibly 3 percent and add the 22 on that, which would be 512 at the very highest.

Mr. DEANE. In other words, they could go to 52 or 6 percent, in your opinion?

Mr. REILLY. It depends on the Government rate for 15-year maturities. But the way they have got to manage the bond account, that rate cannot get too high.

Mr. DEANE. As I understand the bill, the President could determine what the interest factor would be?

Mr. REILLY. Two and a half percent above the average 15-year rate for Government money, and that is the limitation, and I think it will take care of itself.

Mr. MULTER. I didn't think Mr. Deane was going to change the subject.

I want to revert to public housing for a moment. You suggested that it might be better to have the Government make a grant of as much as a thousand dollars to the person who

Mr. REILLY. No, I didn't say a thousand dollars. You asked me if I would rather give him a thousand dollars. I said I wouldn't give it to him but would handle it through an agency. I haven't any idea what it should be, Mr. Multer.

Mr. MULTER. I want to point this out to you and see if you agree with me: If we are taking care of in public housing the income group earning $2,600 a year or less-I have raised the ante now-could that family afford to purchase a house, even one that is sold for $7,000?

Mr. REILLY. The American Banking Association has limited its testimony to the loaning features of the bill. We haven't gotten into the welfare features of it.

Mr. MULTER. That is part of the feature, though, is it not? Certainly that person earning $2,600 a year would have to go in with. little or no downpayment.

Mr. REILLY. That is right.

Mr. MULTER. If it is a $7,000 house they would have to finance to the extent of $6,500 or $7,000. On that basis a 40-year loan would run about $60 a month in carrying charges for interest and amortization, insurance, and utilities.

Mr. REILLY. I don't think you will get the banks to buy those loans. Mr. MULTER. Let us assume the builder will put up the $7,000 house and the banker will buy the loan. Can the man earning $2,600 a year carry that house?

Mr. REILLY. That I don't know.

Mr. MULTER. Well, if the carrying charge, including amortization, interest, and insurance, and utilities, is $60 a month, can he carry it? Mr. REILLY. Earning $2,600 ?

Mr. MULTER. Yes.

Mr. REILLY. I would think he could. It is 25 percent. I don't think that is out of line as a budget for housing.

Mr. MULTER. That is all.

Mr. OAKMAN. Mr. Chairman, I appreciate Mr. Multer giving us the place where this is to be found. It shows that the incomes of the people in public housing, for an average, those over $2,000 a year comprise 492 percent of those people, over $2,500 a year comprise 23 4/10 percent, and over $3,000 a year 62 percent.

That is all, Mr. Chairman.

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

If not, thank you very much, Mr. Reilly.

Mr. REILLY. Thank you, Mr. Chairman and members of the committee, for the opportunity of presenting our views.

The CHAIRMAN. The committee will stand in recess until tomorrow morning at 10 o'clock.

(Whereupon, at 12:20 p. m., the committee adjourned, to meet at 10 a. m., Wednesday, March 10, 1954.)

HOUSING ACT OF 1954

WEDNESDAY, MARCH 10, 1954

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met at 10 a. m., Hon. Jesse P. Wolcott (chairman) presiding.

Present: Chairman Wolcott (presiding), Messrs. Talle, Kilburn, McDonough, Betts, George, McVey, Merrill, Oakman, Stringfellow, Van Pelt, Spence, Brown, Patman, Multer, Deane, O'Brien, Addonizio, Dollinger, Barrett, and O'Hara.

The CHAIRMAN. The committee will come to order.

We will proceed with the consideration of the Housing bill, H. R. 7839.

We have with us this morning the president of the Mortgage Bankers Association, Mr. W. A. Clarke, who is accompanied by Maurice Massey and Sam Neal, general counsel.

Mr. Clarke, we are very glad to have you here with us. You may proceed with your statement without interruption. At the conclusion your statement the members may want to ask you some questions. Mr. CLARKE. Thank you, Mr. Chairman.

of

STATEMENT OF WILLIAM A. CLARKE, PRESIDENT, MORTGAGE BANKERS ASSOCIATION OF AMERICA, ACCOMPANIED BY MAURICE R. MASSEY, JR., PRESIDENT, PEOPLES BOND & MORTGAGE CO., PHILADELPHIA, PA., AND SAM NEAL, GENERAL COUNSEL, MORTGAGE BANKERS ASSOCIATION OF AMERICA

Mr. CLARKE. My name is William A. Clarke. My home is in Media, Pa. I am the principal owner and operating head of a mortgage company bearing my name in Philadelphia. I am appearing today on behalf of the Mortgage Bankers Association of America, of which I have the honor of being the president.

Although the Mortgage Bankers Association has in its membership over 2,000 representation of all types of mortgage lending institutions, the largest part consists of organizations the primary function of which is the development of mortgage business and the organization and servicing of loans for the account of other institutions, mainly banks and life-insurance companies. Mortgage bankers must have close relations with, and intimate knowledge of, every element and aspect of home-building and home-financing activity. There can be no advantage to them that is not an advantage to this great activity as a whole, for only when mortgage money is available at attractive

terms, when builders are able to find a good market for their houses, when buyers are both satisfied with their houses and capable of meeting their mortgage obligations—when, in short, the country is prosperous and the economy expanding, can the mortgage banking industry live and grow. There is no way in which mortgage bankers can prosper unless all with whom they deal are prospering.

The interest of mortgage bankers, consequently, is not a narrow one. Since the legislation before this committee, if enacted, will have a profound influence on the future course and character of the housing market and, through that, on the whole economy of this country, our concern with it is justifiably great, as I believe our view toward it and its implications is genuinely broad.

We have been much impressed by and are in full accord with the statement of basic policy which introduces the recent report of the President's Advisory Committee on Government Housing Policies and Programs. Because of its significance, as well as its bearing on what I shall later say, I ask your indulgence to let me read it in full:

It is the conviction of this committee that the constant improvement of the living conditions of all the people is best accomplished under a strong, free, competitive economy, that every action taken by Government in respect to housing should be for the purpose of facilitating the operation of that economy to provide adequate housing for all the people, to meet demands for new building, to assure the maintenance, restoration, and utilization of the existing stock of housing, and the elimination of conditions that create hazards to public safety and welfare and to the economic health of our communities, and that only those measures that prove to be successful in meeting these objectives should be continued.

Since this statement has been quoted or paraphrased both in messages of the President and speeches and statements of the Housing Administrator, we assume that it offers the underlying principle on which this legislation is based. Our examination of the bill has been made with the view of considering the extent to which this principle has been embodied in its specific provisions.

Title I, for the most part, we believe faithfully follows this underlying principle. It looks upon FHA as did its originators back in 1934, as a means for improving private lending methods, of making possible a wider distribution of the savings of the country for mortgage lending purposes, and, through that, a great expansion of the housing market and the improvement of housing conditions; but not as a means for supplanting private savings with Government credit, or supplanting private decisions, based upon demand as expressed in a free market, with official decisions as to what ought to be built and where and how much.

The original FHA statute was relatively a simple affair, dealing broadly with the whole housing market, high, low, new, and old, without discrimination or special favor. In the intervening years the tendency has been to move away from this position, to substitute special purposes for one broad purpose, Government direction of activity for private decisions, and complexity for simplicity.

The results have not been satisfactory. The law has had to be frequently changed to prevent excesses resulting from misconceptions of the market by Government officials. The creation of special provisions for one type of activity or another has produced pressures of

all kinds to increase or modify these favors. In the end the statute has been so cluttered up with procedural variations and provisions of little or no utility that it has got beyond the comprehension of the experts in the field, let alone the ordinary citizen for whose benefit it was intended.

The pending bill probably goes as far as is presently possible to simplify the statute, to remove discrimination as between one type of house and one type of borrower as against another, to reassert confidence in the private market to make its own decisions, and to make FHA again truly an instrument for facilitating the operation of "a strong, free, competitive economy.'

Specifically, we endorse the elimination of sections of the National Housing Act that have no proven utility; the simplification of procedures for handling group accounts in the mutual mortgage insurance fund, the allowances made against the cost of foreclosure, the provisions on debentures issued on foreclosure, the removal of distortions in the schedule of loan-to-value ratios so as to avoid undue concentration on one area of the market; the increase in the top dollar limits so as partially to restore FHA's original board market coverage, the equalization of terms for new and existing construction, the increase in the limits for financing unsecured loans for repair and modernization, the application of the open-end procedure to FHA-insured loans, and the utilization of FHA-insured loans for the renewing of blighted neighborhoods.

We have only a few suggestions to make about these sections of the act. One of these would be to give FHA authority to refund its own debentures, if necessary, at their 10-year maturity, instead of having to resort to Treasury financing as might be necessary if the foreclosed properties should not have been previously liquidated. Another is a proposal to facilitate the operation of section 213 of the National Housing Act dealing with cooperatives. This is being presented for the Mortgage Bankers Association by Mr. Maurice R. Massey, Jr., who has probably had more experience in financing cooperatives under this section than anyone else in our business.

We also wish to urge the adoption of a provision in the Advisory Committee's report, but not included in the bill, which would give FHA greater leeway in using its income to meet the inevitable variability in its operating expenses. We refer you specifically to recommendation No. 27 of that committee as it appears on page 56 of the printed report.

We believe that if the things are done that I have been discussing, all that may be done to make FHA a beneficial aid to the operation of the private market will have been done. To go beyond this would only be to revert to the practice of setting up a special provision to meet each real or assumed emergency, to renew pressure to make the new provision applicable to a greater range of cases, and to turn builders and lenders away from their own responsibility for meeting public demand to dependence on Government support and direction.

For example, the bill proposes enactment of a new insurance program to be called section 220. We support the objectives of this proposed program but we do not support the method it is proposed to use to accomplish there objectives. So far as we can determine the maximum loan limits and other terms proposed for these new 220