Now, 7 of those 12, the members of the Board of Governors, are in fact public officials. They are on that open market committee of 12 which fixes these interest rates. That is the only board that fixes interest rates. No other board does it. There is no other power to interfere. The 12 Federal Reserve banks can't interfere, and have no power or control over it.

Those 12 men do it. And seven of them are genuine public officials, selected by the President of the United States. But 5 of those 12 are selected by the private commercial banks and bankers. In other words, unlike the kind of democracy that we have, here is a case where a select group, which is personally and privately interested, selfishly interested, is selecting those 5 people to go on this board of 12 to fix the long-term interest rates which fixed the rate that veterans have to pay. Get the last annual report of the Board of Governors of the Federal Reserve System, under the law they do have to report the votes on open market committee policies, and you will find, there, where the private members of that board on fundamental policymaking decisions, actually outvoted the public members of the board.

So you can see that we have a situation which is against the public interest. I think the American Legion could well afford to take some interest in that.

Mr. DANIEL. We appreciate that observation and we shall.

Mr. PATMAN. Because it is against the public interest, just as if the TV operators and the radio owners had complete charge over the Federal Communications Commission. It would be comparable to the Federal Reserve and the open market committee. Or if the railroad owners had complete charge of the Interstate Commerce Commission and could fix rates as they wanted to fix them. That would be a comparable situation to what we have now in the fixing of money rates. I earnestly urge you to give consideration to that.

Mr. BROWN. Mr. Chairman.

The CHAIRMAN. Mr. Brown.

Mr. BROWN. The American Legion, as I understand it, is against sections 201 and 801, is that correct?

Mr. DANIEL. That is correct.

Mr. BROWN. In their entirety?

Mr. DANIEL. Yes, sir, that is correct.

Mr. BROWN. That is all.

The CHAIRMAN. Are there further questions of Mr. Kennedy or Mr. Daniel?

If not, thank you very much for being here, gentlemen.

Mr. KENNEDY. Thank you, Mr. Chairman and members of the committee, for the courtesy extended to us.

The CHAIRMAN. We will now hear from Mr. A. M. Downer, legislative representative of the Veterans of Foreign Wars.

STATEMENT OF A. M. DOWNER, ASSISTANT LEGISLATIVE OFFICER, VETERANS OF FOREIGN WARS OF THE UNITED STATES

Mr. DOWNER. Thank you, Mr. Chairman.

Mr. Chairman and members of the committee, the Veterans of Foreign Wars of the United States is an organization composed of 1,250,000 men who have served in the Armed Forces on foreign soil

or hostile waters in time of war or during a recognized campaign or expedition. As a veterans organization, our interest in the legislation before you is confined to those provisions of the bill which relate to the home loan program of the Veterans' Administration and other housing preferences accorded veterans by existing law. I should like to briefly discuss these aspects of the bill, but first I should like to recall some of the circumstances that led to the establishment of a veterans preference in housing.

During World War II a critical shortage of housing developed throughout the entire country. At the end of the war it soon became apparent that such housing as did exist was occupied by those who had not been in the service and the large majority of home hunters were those who had been. In addition was the fact that building costs have risen sharply and the market value of existing housing had in many instances doubled or tripled since the beginning of the war. While this was going on, those in the Armed Forces were under strict military pay scales while the civilian population enjoyed high wages and high profits.

Thus, during a period of unprecedented prosperity, the ability of the veteran to compete in this scarce market had been reduced. In recognition of these facts, the Congress very properly extended to veterans certain preferences to enable them to buy or build a home. These preferences have been of very great value to the veteran population, expedited the building of adequate housing for the Nation and have substantially contributed to the general welfare. Many veterans who have not yet found it advisable or possible to avail themselves of the preferences which Congress established are now in a position where the continuance of the program is necessary to enable them to acquire a home for themselves and their families. We hope the Congress will continue the traditional policy of veterans pref

erence.

We believe the veteran, by his wartime service, earned the right to the preference he has been accorded. Experience has proven the VA program to be sound and has shown that the delinquency rate is about one-half the rate that prevails in nonveteran loans. At the end of the 1953 fiscal year the loan guaranty division had guaranteed 3,271,450 home loans. They estimate a potential of 6 million borrowers from the present veteran population. Since the program is limited in scope and since the payment record is so good, we are unable to see where continuation of the program constitutes any danger to our economy. However, we believe Congress should consider very carefully before expanding the FHA program for the entire population on approximately the same liberal credit terms that apply to the VA program. We are apprehensive that such a vast program might possibly result in overbuilding to the point that it will ultimately collapse real estate

values.

In addition to these general observations, I should like to briefly discuss section 201, which would delegate to the President authority to establish maximum interest rates on FHA and VA mortgages at a level not exceeding the average market yield on Government bonds plus 22 percent. The Veterans of Foreign Wars protested when the interest rate on VA loans was increased from 4 to 412 percent. This position was subsequently reaffirmed by a resolution of our last na

tional encampment, held in Milwaukee, Wis., August 2 to 7, 1953. Section 201, while not directly establishing an increased rate, does authorize an additional increase and is contrary to the views of our organization.

We can see some merit to the proposition that interest rates should be flexible as to rise or decline in accordance with the many factors that influence the price and availability of money. However, we prefer to have the Congress retain its authority to establish interest rates and feel confident that the Congress will promptly act if changed conditions require the adjustment of rates.

If the Congress is to delegate authority as contemplated by section 201, it will establish in some person or group of persons an authority that will be a constant lure to investors who continually seek to increase the earnings on their invested capital. It seems certain that a person or a group of persons with such broad authority would be subjected to more pressure by such forces than would the Congress of the United States.

In addition is the fact that the Federal Reserve Board already has the authority and does fix the rate of yield on Government bonds by the simple expedient of buying and selling on the open market.

We hope Congress will not relinquish the authority it has over interest rates on Government guaranteed mortgages. We also wish to suggest that the housing subcommittee of the House Committee on Veterans Affairs is now conducting hearings in many areas of the United States, inquiring into the availability of mortgage money, discount practices, and interest rates. Since one committee of the Congress is conducting an investigation to develop facts so that we can properly legislate in this field, it seems legislation should be delayed until that report is available.

The importance of the VA program is indicated by the fact that the VA guaranteed approximately 319,000 home loans during fiscal 1953. The average amount of these loans was $9,480 and the average term was 20 years. The importance of the interest rate is indicated by the fact that an increase of three-fourths of 1 percent in the present rate when applied to last year's average loan would result in total increased payments of $932.83. An increase of three-fourths over the present rate would be authorized by section 201 on the basis of the average yield on Government bonds on February 1 of this year.

Title 8 of the bill would reduce the preferences accorded veterans under existing law in the purchase of housing built by the Government during World War II as a part of the war effort. This housing was nearly all built in the years 1940 to 1943, so that which is unsold has been retained by the Government for a period of 11 to 14 years. Under existing regulations the Administrator advertises for a period of 30 days an offer to sell at a fixed price to veterans under the preference provisions and if at the end of 30 days no sale has been made, the property can then be offered to the public and sold on a bid basis. We see no reason why this 30-day delay occasioned by veterans' preference provisions should suddenly become so important in the sale of property which the Government has held for such a long period of time. Nearly all of this housing that has been sold in the past has been purchased by veterans under the preference provisions and we strongly urge the committee to continue the preferences as provided by existing law.

We appreciate very much the opportunity to appear before this committee and thank you for your kind attention to our views.

The CHAIRMAN. Thank you, Mr. Downer. We are very glad to have your views.

Are there questions of Mr. Downer?

Mr. PATMAN. Mr. Chairman.

The CHAIRMAN. Mr. Patman.

Mr. PATMAN. If I correctly interpret your testimony, you are more concerned about the loss of veterans' preference than the other provisions of the bill, Mr. Downer?

Mr. DOWNER. We are concerned about that, Mr. Patman, and the interest rate also.

Mr. PATMAN. Also the interest rate?

Mr. DOWNER. Yes, sir.

Mr. PATMAN. Do you agree with what the American Legion representative said about the interest rate?

. Mr. DOWNER, Yes, sir.

Mr. PATMAN. And you are also concerned with the veterans' preference being eliminated?

Mr. DOWNER. Yes, sir.

Mr. PATMAN. And you want it extended until the present law expires, say, in 1957?

Mr. DOWNER. Yes, sir.

Mr. PATMAN. I hope you keep in mind, too, who fixes interest rates, Mr. Downer, in your consideration of these matters.

Mr. SPENCE. The veterans' preference was not only based on the fact of service to the country, but it was because veterans were placed in a disadvantageous position by being sent out of the country, losing their homes at that time, and being unable to obtain homes when they came back, isn't that true?

Mr. DOWNER. That is correct, Mr. Spence.

Mr. SPENCE. Even if there were no question of service involved, I think veterans should have a preference because of that condition. Mr. PATMAN. They were placed at a disadvantage.

Mr. SPENCE. Yes, by reason of their service to the country.

Mr. DOWNER. That is correct.

The CHAIRMAN. Are there any further questions of Mr. Downer? Mr. WIDNALL. Mr. Chairman.

The CHAIRMAN. Mr. Widnall.

Mr. WIDNALL. Do you find any section of the country in which the veteran finds he is unable to purchase housing because of inability to meet the necessary requirements? Is housing priced too high for the veterans now, or are the montly payments too high?

Mr. DOWNER. I think the payments don't cause so much trouble at the present time, as the scarcity of mortgage money. I was informed 2 or 3 days ago, by counsel for the Housing Subcommittee of the House Committee on Veterans' Affairs, that conducted hearings in Los Angeles last week, that evidence before the committee there indicated that there were discounts of 4, 5, and 6 percent. In other words, that a veteran borrower would only get 94, 95, or 96 out of every hundred dollars that he executed his mortgage for, in order to get a loan.

That, of course, is a condition that varies greatly throughout the country. In some areas that is the big problem at the present time.

I think the monthly payment factors probably are not really serious, since the regulations were changed so that no downpayment is required if the lender is willing to make a loan without a downpayment.

Mr. WIDNALL. In the case that you cite, there is probably an overall commitment for two or three hundred houses on that basis, is that so? Mr. DOWNER. I am not sure that I understand your question.

Mr. WIDNALL. When you mentioned a discount of 4 or 5 percent, whatever it was, there was probably an original commitment made covering the entire project, to the builder and not actually to the vet

eran.

Mr. DOWNER. That may be. My information about that particular situation is rather sketchy. I assume the report of the committee will be available before very long.

Mr. WIDNALL. What length of time do you mean by that, "before very long"?

Mr. DOWNER. Well, I assume within a matter of a few weeks. But I don't know. It depends on whether or not the committee might decide to conduct those hearings in other areas. They have already been in San Antonio, Houston, Cincinnati, Cleveland, Los Angeles6 or 7 cities already.

I think the findings of that committee would be very important to a consideration of the interest problem.

Mr. WIDNALL. I should think it would be valuable information.
That is all, Mr. Chairman.

Mr. PATMAN. Which committee conducted those investigations? Mr. DOWNER. The Housing Subcommittee of the House Committee on Veterans' Affairs.

Mr. PATMAN. They have conducted hearings all over the country dealing with the interest rates, and the availability of mortgage money?

Mr. DOWNER. Yes, sir.

Mr. PATMAN. And you state that in some places they are having to take 94 cents on the dollar in order to get mortgage money?

Mr. DOWNER. Yes, sir.

Mr. PATMAN. That being true, they would get $940 out of every thousand dollars, and continue to pay interest on a thousand dollars throughout the duration of the mortgage?

Mr. DOWNER. That is true.

Mr. PATMAN. Suppose they had to pay 3 percent more, as proposed in this new reorganized and rejuvenated FNMA. That would permit them to receive only 91 cents out of the dollar, wouldn't it?

Mr. DOWNER. That is true.

Mr. STRINGFELLOW. Mr. Chairman.

The CHAIRMAN. Mr. Stringfellow.

Mr. STRINGFELLOW. Mr. Downer, I wondered if you took into consideration the regional problems which might prevail relative to the establishment of the rate of interest on VA loans.

I have specific reference to my area. There were no GI loans made in that area for about 2 years-for 1 purpose, because the 4-percent rigid rate was not competitive, and, therefore, the veterans were relying on a direct loaning program by the VA, and, of course, the funds there were not adequate.