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Mr. CRESWELL. During the last 3 years I have spent as much time as I could spare in trying to fight this battle for small-business men. I have talked to small-business men in each of the larger cities, both in personal conversations and at various meetings, and I donated my services to the Department of Commerce to serve on its Small Business Advisory Committee. I have talked with groups of businessmen at least once a week during the last 2 or 3 years.

Mr. COLE. Have you had many complaints from small-business men whose applications have been turned down to the effect that they felt that if they had had help from one or the other political they might have received the loan?

Mr. CRESWELL. No, sir. I have never heard anyone mention either political party or any political party. I believe the obstacle has been the interpretation, by the Reconstruction Finance Board of Directors, of this particular clause, "or so secured."

I have had experience in talking to the directors of the Reconstruction Finance Corporation about this particular problem, and have had them tell me that they intended to cooperate fully and that their instructions were such as to require them to cooperate with business.

Then I have gone to the local offices of the Reconstruction Finance Corporation and have found that the policy of the men carrying out those instructions was directly opposed to the feeling of the board of directors.

The Chairman and I-when Mr. Henderson was Chairman of the Reconstruction Finance Corporation—had quite a set-to, and I told him what I thought of men with double expressions. Mr. Henderson has left, thank goodness, and the policy has been changed quite a bit, and last year it has been somewhat better. But they still stick to the same interpretation of that clause.

Mr. COLE. The reason I asked that question is because I have had some experiences of that type—where people have had loans turned down-and when they tried to find out why they were turned down some have had some innuendo suggested to them that if they had had the right person backing them they would have gotten the loan.

I was wondering if you had had anything like that.

Mr. CRESWELL. No, sir. It is my judgment that the trouble lies right in the hands of the directors of the Reconstruction Finance Corporation.

Mr. COLE. But your local officers, of course, have the first say about it. They either turn it down or approve it, locally.

Mr. CRESWELL. Yes. There was a long time when the local officer of the Reconstruction Finance Corporation would not even take an application. They would do everything in their power to get a man to withdraw his application.

Mr. COLE. I am not talking about the present set-up in my area, but surely some years ago I certainly did have that impression, and it was surely the impression of many people in my area that that was the situation.

Mr. CRESWELL. I know it was the situation, and I know it was not changed until I personally took the matter up with the board of Reconstruction Finance Corporation and the Small Business Committee of the House of Representatives and the Small Business Committee of the Senate. After a very strenuous battle on my part we got those instruction changed. That was about a year ago.

Mr. Brown. On what percentage of the value of the property does the Reconstruction Finance Corporation make loans?

Mr. CRESWELL. The Reconstruction Finance Corporation has the practice of loaning on approximately 60 percent of what they consider to be the property value. If there is a piece of real estate on which they are going to make a loan, or, say, a piece of machinery, or something which they consider to be a sound, secured value, they might loan 60 percent.

In most instances that will not do the job at all. A man can get that from his local bank.

Mr. Brown. Then they only loan up to 90 percent of the 60 percent, do they not!

Mr. CRESWELL. Yes.

Mr. Brown. Ten percent has to be supplied by the local lending institution.

Mr. CRESWELL. That is in your participation plan. But that has been changed somewhat now, and the proportion is 25 to 75, I think, under present regulations. I may be wrong.

Mr. TALLE. Mr. Chairman.
The CHAIRMAN. Mr. Talle.

Mr. TALLE. Under “a” in your suggested amendment, will you illustrate what you mean by the term “functional assets ?"

Mr. CRESWELL. Yes, sir; I will be glad to.

Normally, in the practice of lending money, a bank will take working capital as the cash on hand, in the accounts receivable, less current expenditures. They consider that as working capital. They consider fixed assets such things as buildings and machinery.

There is another asset that a business must have in order to operate, and that is the asset of know-how which is acquired through engineering, blueprints, developments, tools, dies, jigs, fixtures, patterns and, in some instances, patents.

A man who starts a retail store may have to spend money to get that store cleaned up, get a sign on the window, print his advertising, and so forth.

Those are things which are necessary in order that that business may function. He could not do business without them. Yet, from the moment he starts to do those things that are necessary to start a business, his assets decrease. He may spend a thousand dollars to fix up a store so that he can do business. That thousand dollars is a definite asset of the business if it creates those things which I have named. But, from the standpoint of the banker, it is no good at all. It has no value.

In my terminology, I term those “functional assets"—that is, assets that a man acquires through spending money to get into business, or to stay in business.

Mr. Talle. In other words, you would include such a thing as "organization expense."

Mr. CRESWELL. Not necessarily, though you do have to have an organization before you can go ahead.

Mr. TALLE. Or put on a national advertising campaign.

Mr. CRESWELL. That is definitely a functional asset—the good will created by the national advertising campaign.

Mr. TALLE. In other words, the term includes two classes of asets, really; some of which are tangible and some that are intangible.

Mr. CRESWELL. That is correct. But they are usually classed by credit men and bankers as being of no value at all, and certainly they are so classed by the Reconstruction Finance Corporation.

The CHAIRMAN. Are there further questions of Mr. Creswell?
If not, thank you very much, Mr. Creswell.

Mr. CRESWELL. Thank you for giving me your time, Mr. Chairman. I certainly appreciate it.

The CHAIRMAN. Mr. Goodloe, will you come forward, please!

I might say, before proceeding with Mr. Goodloe, that the National Retail Lumber Dealers Association are recommending the retention of the Federal National Mortgage Association, and it is their desire to insert a statement in the record to that effect.

Without objection, it may be inserted.
(The statement above referred to is as follows:)

NATIONAL RETAIL LUMBER DEALERS ASSOCIATION,

Washington 6, D. C., April 26, 1948. Hon. JESSE P. WOLCOTT, Chairman, House Banking and Currency Committee,

House Office Building, Washington, D. C. MY DEAR MR. CHAIRMAN: On Friday, April 23, Mr. Samuel Neel, Washington counsel for the Mortgage Bankers Association of America, appeared before your committee in connection with the bill (S. 2287) extending the life of the Reconstruction Finance Corporation until 1958. In the prepared statement filed by Mr. Neel he advocated the continuation of the life of the Federal National Mortgage Association notwithstanding the fact that the Senate had directed (sec. 5) that the Reconstruction Finance Corporation wind up and dissolve the Federal National Mortgage Association. As pointed out by Mr. Neel, the Senate authorized the dissolution of the Federal National Mortgage Association on the assumption that its continuation was no longer needed because a substitute corporation was provided for in the Taft-Ellender-Wagner bill (S. 866).

The National Retail Lumber Dealers Association endorses in substance the position of the Mortgage Bankers Association of America in requesting the continuation of the Federal National Mortgage Association until such time as Congress shall determine the policy that the Federal Government shall pursue in the field of secondary home mortgage markets. This guestion should be determined by Congress in connection with its consideration of the Taft-Ellender-Wagner bill (S. 866), but pending such determination thr Federal National Mortgage Association should be permitted to continue its operations.

According to our information, the activities of th.. Federal National Mortgage Association are less apt to be inflationary than is the proposed secondary market program contemplated by the Taft-Ellender-Wagnam bill. Moreover, the establishment of a new agency to handle a secondary mortgage market program and the termination of an established agency would only lead to confusion which may materially affect the amount of rental housing now being constructed under the present program.

It is therefore recommended that the Federal National Mortgage Association be permitted to continue its present operations at least until the long-term policy of Congress is determined. Yours very truly,

H. R. NORTHUP, Secretary-Manager. The CHAIRMAN. The American Veterans of World War II have also requested permission to file a statement for the record requesting the retention of the Federal National Mortgage Association.

Without objection, their statement will be incorporated in the record.

(The statement above referred to is as follows:)

AMERICAN VETERANS OF WORLD WAR II,

Washington, D. C., April 27, 1948. Hon. JESSE P. WOLCOTT, Chairman, Committee on Banking and Currency,

House of Representativ Washington 25, D. C. DEAR MR. WOLCOTT: During the past few weeks reports have been reaching AMVETS national headquarters that an effective secondary market for home loans has been found in the Federal National Mortgage Association and that, whereas for a period it was impossible to move GI mortgage paper, a new combination FHA-GI pattern of mortgage financing has been adopted which has relieved the frozen status that has recently been stifling the home-construction industry.

AMVETS is, therefore, very much alarmed to learn that a bill (S. 2287) is under consideration which would dissolve the Federal National Mortgage Association and thus immediately destroy the remaining financing facilities available to builders of homes for veterans, as well as other citizens desiring such facilities.

The most important need of American veterans today is housing, and housing has been the No. 1 mandate handed down by the 1946 and 1947 AMVETS national conventions. After making a detailed investigation of the effect of section 5 of S. 2287, there is no question in my mind that no more injurious legislation could be passed with respect to home construction at this time, and the following suggestions are made with respect to the action of your committee on the subject :

1. That section 5 be deleted from S. 2287; and

2. That the organization and machinery of the Federal National Mortgage Association be transferred by S. 866, when that bill is considered by your committee, as a nucleus for the establishment of a secondary mortgage purchaser, so as to obviate any lapse in home-financing facilities which might result from delay in setting up an organization under the new housing bill.

The 1948 home-construction season is just opening, and the dissolution of the one remaining agency to facilitate construction financing would have a disastrous effect upon 1948 construction totals. This is the most vital problem of veterans throughout the country, and they can be greatly benefited without any extra expense to the Federal Government, by retaining the FNMA, at least until its facilities can be transferred to, or its duties actually undertaken by, another agency, as provided in S. 866 and other pending housing legislation. Respectfully yours,

EDGAR C. CORRY, Jr., National Commander. The CHAIRMAN. I have asked Mr. Goodloe to come back to give us more information on the Federal National Mortgage Associationhow it has functioned, how it expects to function, and what he recommends be done with respect to it.

Just give us a picture of its activities, Mr. Goodloe.

FURTHER STATEMENT OF JOHN D. GOODLOE, CHAIRMAN, BOARD

OF DIRECTORS, RECONSTRUCTION FINANCE CORPORATION Mr. GOODLOE. As you will recall, we spoke very briefly about it last Thursday.

It was pointed out, at that time, that that is the only Federal National Mortgage Association that is in existence. It was created under title III of the Housing Act. Its main function has always been to provide a secondary market for FHA insured mortgages.

At the outset, you will recall, the Federal Housing Administration set-up was new, and after it had been in operation for some time the investment houses, insurance companies, and so forth, began to take the Federal Housing Administration mortgages, and for the last several years—up until perhaps the last 90 days—the Federal National Mortgage Association has been kept as more or less a stand-by agency.

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It transacted very little business. As a matter of fact, at one time I think we had something like $270,000,000, in round figures, of FHA insured mortgages which, after they were seasoned, were sold to the investment public by “Fannie May” at a profit. This profit when added to interest return amounts to around $23,000,000 on the operation.

We kept, in the portfolio of Federal National Mortgage Associa. tion, only 4 or 5 million dollars in insured mortgages-just enough so that the association would have enough income to maintain itself as a stand-by agency,

However, as I indicated the other day, the situation has changed substantially within the last 90 days, and I have some figures which I think would indicate that.

For example, from October through December of 1947 we bought no Federal Housing Administration section 603 or section 608 mortgages.

In January there were 51 for a total of $266,741.48. In February that stepped up to 146, for a total of $1,116,214.36. In March, 567, for a total of $4,294,480.67.

Those were actual purchases. In addition, during the same period we made certain commitments to purchase, and, as I explained the other day, that commitment to purchase is an arrangement whereby the Federal National Mortgage Association, on application, issues a commitment to purchase, at par, the permanent FHA insued mortgage. When construction is initiated the mortgage comes into being and it is insured by Federal Housing Administration. We will buy it at par if tendered within 1 year, and the applicant is required to pay a commitment fee, in connection with such an arrangement, of 1 percent, which 1 percent is applied on the purchase price if the mortgage is sold by the Federal National Mortgage Association. Otherwise, it is a charge for that service.

So during that same period, October through December 1947, we made 111 commitments to purchase aggregating $752,200.

In January that jumped up to 346 commitments aggregating $2,574,285.71. In February there were 1,643 commitments aggregating $9,613,935.72. In March, 4,411 commitments, aggregating $30,634,487.87

Those last figures I gave were just the 603's.

In addition to that there were no 608's in the period OctoberDecember 1947; none in January; none in February. But in March there were 26 of the 608's. The 608 is the large rental housing unit, in excess of four-family units. In March there were 26 of those, totaling about $13,000,000.

The CHAIRMAN. At the present time, Mr. Goodloe, in the aggregate, how much does “Fannie May” have in its portfolio and what are the total commitments!

Mr. GOODLOE. May I give you an approximate figure on that and furnish the final figure?

The CHAIRMAN. Surely.
Mr. GOODLOE. It is, I am informed, $61,000,000 at the present time.
The CHAIRMAN. That is in holdings and commitments ?
Mr. GOODLE. Holdings and commitments, yes sir.

The CHAIRMAN. What is the volume of activity in addition to your holdings and your commitments! What is the number of processed applications? Do you have that information? What I am trying

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