War Assets Administration. Similar material, used for the same purposes but owned by the Army and Navy, was tax exempt. Also, RFC administration was hampered by the diversities in the tax laws of the six or seven States which tax this kind of property. It was felt that there was an advantage in having the tax burden on war materials borne on a national basis rather than on a local basis. Diversities in treatment were especially striking with regard to pipe lines and power lines running through more than one State, with instances of taxation in one State and not in another.

I think it can be said that the importance of this question has diminished with time and with the accomplishment by War Assets Administration of the disposition of surplus property. Since that job has been largely completed and the property has passed into private hands, much of the effect which the local taxing authorities might otherwise have felt is now eliminated.

When all the surplus property is disposed of, this statutory exemption will operate only with respect to that small amount of property which RFC takes from time to time in foreclosure and with respect to which RFC's policy is to liquidate promptly. The balance sheet of RFC as of June 30, 1947, indicates that RFC had approximately $22,000,000 in properties and securities acquired by foreclosure. A substantial portion of this total amount would represent property not in the categories of property which some State might, under its local laws, tax as real estate. This figure, however, indicates the comparatively small amount of property resulting from the normal lending activities of RFC, which would have a temporary status of tax exemption.

Accordingly, it seems to us that in the interest of uniformity of treatment between the various States, there is an advantage in retaining this provision of tax exemption and that no substantial injustice is likely to result in doing so. You are aware that the 1947 RFC Act does not relieve RFC from the payment of ordinary local real-estate taxes on real property. This provision merely removes from taxation certain controversial types of property which a few of the States from time to time have defined as real property and taxed as such. I am returning herewith Mr. Mallery's letter to you.

Yours very truly,

LEWIS M. STEVENS, Chief Counsel, RFC Inquiry.

Mr. JOHNSON. Now, I will be glad to answer any questions the committee may have.

Mr. TALLE. Mr. Chairman.

The CHAIRMAN. Mr. Talle.

Mr. TALLE. You mentioned "fixtures." Will you explain in further detail what those fixtures are?

Mr. JOHNSON. Certain types of fixtures are affixed to a building. I do not know what the situation is in Iowa, but in my State the assessment of a piece of property which rests on land is considered all land, but they divide it up into the land value and improvements. And if machinery is screwed to the floor, that is considered part of the building, so it is, therefore, part of the land a man owns.

By the amendment which was introduced in the Eightieth Congress, in Public Law 132, it eliminated from taxation certain possessory interests, pipe lines, fixtures, and so forth, belonging to the Reconstruction Finance Corporation.

Mr. TALLE. Suppose some promoter of a pipe line went out and bought easements so that the pipe might be laid, what effect would your proposal have on the taxation of those easement rights?

Mr. JOHNSON. I have to measure it by my own State. In our State they would tax the easement and also tax the property. And we have a way of taxing pipe lines as well. We also have a way of taxing, in our State, possessory interests.

For instance, we have a veterans' welfare board which sells property to veterans. They buy the property and sell it to veterans, or they finance it, and the State taxes the possessory interest of the

property. If he has lived there 5 years and he has 20 years to pay out, they tax roughly the amount that he has paid in during those 5 years.

Mr. TALLE. That is all for the moment, Mr. Chairman.

Mr. SMITH. I am sorry I was not here in time to hear your statement, Mr. Johnson, but I am not familiar with what is meant by some of these terms mentioned in your bill, H. R. 5129, such as possessory interests. Would you mind explaining that?

Mr. JOHNSON. I am asking that that clause be eliminated from the law so that that type of property which is described there-if the property is owned by the Reconstruction Finance Corporation-be made taxable. In private property those rights are taxable in some States. I do not know whether Ohio is one of them. California is.

I explained to the gentleman from Iowa what a possessory right was in our State. It is a right that a man has in a piece of property which he is buying, but which is actually owned by someone else. But he has paid a certain amount on it and has what we call a possessory right. We tax that. This clause that I am asking be eliminated also eliminates machinery, equipment, regardless of their nature, use, or manner of attachment to the property.

Mr. SMITH. You think those things ought to be taxed in the regular way?

Mr. JOHNSON. They ought to be taxed in the regular way, even if the property is owned by the Reconstruction Finance Corporation, because they are taxed in the same way if they are owned by private individuals. We want to put the Reconstruction Finance Corporation on a parity with a private individual where the Reconstruction Finance Corporation is a property holder.

Mr. SMITH. How much of this property does the Reconstruction Finance Corporation own; have you any idea?

Mr. JOHNSON. I have no idea; except that in my own State it is probably at least $25,000,000 worth.

Mr. SMITH. How do they acquire that property?

Mr. JOHNSON. I understand they financed or built war plants, shipyards, aircraft plants, and so forth. In the town in which I live there are some shipyard plants, some of which were built by the Reconstruction Finance Corporation.

Mr. SMITH. In other words, this infringes on your ability to acquire enough tax money, or what you think you ought to have, for the operation of your various functions?

Mr. JOHNSON. It does reduce the tax base of the local subdivision, city, or county, by the amount of these properties which are exempt. The Reconstruction Finance Corporation, I understand, has expressed. a willingness to pay taxes to localities for protection which they get from local governments. But for some reason they passed in the Eightieth Congress this law which carves these things out of what they would like to pay taxes on. We want those restored to taxation, so that the Reconstruction Finance Corporation, in paying taxes, will be on the same level and under the same liability as the individual taxpayers.

The CHAIRMAN. Most of these properties have been transferred by the Reconstruction Finance Corporation to War Assets now, but the title remains in Reconstruction Finance Corporation. The jurisdiction is now at the War Assets level.

Mr. JOHNSON. That is true, but the Reconstruction Finance Corporation is still the owner, and we think they should meet those obligations. Furthermore, the liquidation of them might extend over several years.

The CHAIRMAN. Are there further questions of Congressman Johnson?

Mr. JOHNSON. I want to express my thanks to you, Mr. Chairman, for allowing me to testify today. Mr. Byrnes of Wisconsin asked me to state that he concurred in my suggestions.

The CHAIRMAN. We are very happy to have you here. If you care to make any supplemental statement for the record, we will be glad to have it.

Mr. JOHNSON. Thank you.

The CHAIRMAN. Mr. Neel.

STATEMENT OF SAMUEL E. NEEL, WASHINGTON COUNSEL,
MORTGAGE BANKERS ASSOCIATION OF AMERICA

Mr. NEEL. Mr. Chairman, my name is Samuel E. Neel. I am Washington counsel for the Mortgage Bankers Association of America. I have a very brief statement, sir, which I would like to submit for the record, in connection with Senate 2287, the Reconstruction Finance Corporation bill, specifically with respect to section 5 of the bill as passed by the Senate.

Section 5 of S. 2287 directs the Reconstruction Finance Corporation to dissolve and liquidate the Federal National Mortgage Association immediately upon the passage of the bill. The Federal National Mortgage Association is commonly called Fannie May by the people in the industry, Mr. Chairman. When it was created, it was created in order to make a market for Federal Housing Administration loans to the extent that private industry was unable to absorb the mortgages. The association which I represent is composed of companies and individuals which are in the business of creating mortgages and selling them to private investors.

When Fannie May was created, it was in the early days of the Federal Housing Administration, before the people really knew how good a Federal Housing Administration mortgage was or was to become, and in the early days of Fannie May, they purchased a large number of mortgages which had been insured by the Federal Housing Administration.

Subsequently, as time went on, it became apparent to private investors that a Federal Housing Administration insured mortgage was a very good investment, and private investors bought from Fannie May the great majority of the mortgages which they had originally bought. In fact, Mr. Goodloe, the gentleman from the Reconstruction Finance Corporation, who testified yesterday, indicated that the mortgages which Fannie May retained were enough mortgages to give them enough of an income to support the operations of Fannie Maythat is, to keep it in existence. All the rest of the mortgages Fannie May sold at a substantial profit. They did not take a loss of any kind or character.

Fannie May is still in the business of buying Federal Housing Administration title II and title VI mortgages. It does not buy any other kind of mortgages, and it does not buy title I mortgages which are

insured by the Federal Housing Administration. Their purchasing operations, over the past year or so, have been very limited, because nobody can make a profit out of selling any mortgages to Fannie May, and that is as it should be. It is the position of our association that nobody should make a profit out of selling any mortgage to the Government.

On title VI loans, section 608 loans, which Fannie May buys, they buy those at par and they do their own servicing. Therefore, once the loan is sold to Fannie May, nobody outside retains an interest in it. On section 603 loans, Fannie May does not do its own servicing and, therefore, the person who sells the loan to Fannie May retains the servicing of the loan for which he is paid a half of one percent, which is about what it costs him to actually make the inspections and do the servicing. There is no profit involved in section 603 loans.

Now, Mr. Chairman, when the Senate committee reported this bill in the Senate, they stated that they had recommended that Fannie May be liquidated because there was no need to continue its operations. However, I think they were either inconsistent in what they said or they meant something different, because the same committee, in reporting the Taft-Ellender-Wagner bill, recommended that a greatly enlarged secondary mortgage program be established under Mr. Foley, in a new corporation, and that Fannie May's operations be transferred to it. So I think that what the Senate committee meant probably was that there would be no need for Fannie May's operations in the event that the new corporation, which was to be established under the Taft-Ellender-Wagner bill, was created.

The Mortgage Bankers Association has been opposed to the extension of the secondary market in the Government. We feel that Government involvement in this business is dangerous, and we feel that to the maximum extent possible private industry ought to be allowed to paddle its own canoe. Therefore, we have been opposed to the extension of the market as recommended in the Taft-Ellender-Wagner bill as passed by the Senate, on principle, and further we have been opposed to it because we felt-and do feel that even if such an elaborated market is necessary, that it should be maintained in Fannie May, which is a going organization, which has a lot of talent and ability, which has shown a profitable operation, and has shown a willingness to limit the market to absolute necessity, and we feel it would be an unnecessary expense to set up an entirely new corporation and to put it into operation, in addition, as I say, to feeling that it is undesirable, as a matter of principle.

However, it is true that it is our feeling that until Congress determines its long-term policy on a permanent secondary market and other features in the housing field-perhaps authorization for increased interest rates-that it would be well if you would permit Fannie May to at least continue its present operations until you either decide a substitute is or is not necessary. For that reason we are recommending to you that Fannie May be permitted to continue its present limited operations, and that this section of the bill as passed by the Senate be stricken.

I might say, as I believe I mentioned, that Fannie May has made comparatively few purchases. In the last few weeks they have made a number of purchases under title VI, because it has been known throughout the industry that this section was in the Senate bill, and

that, therefore, the market made by Fannie May for particularly 608 loans, which are rental housing loans, might be eliminated at any time. Therefore, there has been some effort to get commitments from Fannie May so as to beat this apparent dead line where otherwise no one would have even wanted the commitment. Because nobody wants to sell loans to Fannie May. As I say, it is desirable that that should be the condition. It should not be profitable.

So our recommendation to you, sir, is that this particular section be eliminated, and that Fannie May be allowed to continue its operations at least until you gentlemen determine what your long-term policy on various housing matters, including interest rates and so forth, will be.

Mr. SMITH. And the particular section of the Taft-Ellender-Wagner bill should be eliminated?

Mr. NEEL. We are not in favor of that particular section.

Mr. SMITH. Is that what you refer to when you ask that that section be eliminated?

Mr. NEEL. No, sir; I am asking that section 5 of the pending Reconstruction Finance Corporation bill be eliminated. This section recommends the immediate dissolution of Fannie May.

Mr. SMITH. And you request that we retain Fannie May at the present time?

Mr. NEEL. Yes, sir.

The CHAIRMAN. The section of the Taft-Ellender Wagner bill sets up a new secondary market through Government financing? Mr. NEEL. Yes, sir; it does.

The CHAIRMAN. The reason the Senate committee would dissolve the Federal National Mortgage Association is because that new secondary market would be set up. So the committee should have in mind the provisions of the Taft-Ellender-Wagner bill in passing upon this. You prefer that the secondary market remain where it is, in the Reconstruction Finance Corporation, rather than be transferred to another corporation.

Mr. NEEL. We much prefer that, sir, because we think it would be unwise and unnecessary-both from a point of view of expense and otherwise to set up a new corporation, and, second, it would take a long time to get into operation, third, we are not in favor of the expansion of the program as it is contemplated by the new Taft-Ellender-Wagner bill.

But even assuming that you were to enact the provisions of the TaftEllender-Wagner bill, we think it would be a mistake to eliminate Fannie May until you were certain of your attitude on that program. Under the current situation, if you passed this bill as it is, you would require that Fannie May be eliminated immediately, leaving it for the indefinite future as to whether the new program were ever to be set up. In our opinion that may simply be another means, perhaps, of putting a little pressure on to get the Taft-Ellender-Wagner bill passed, because if you eliminate this now, you do create a demand for some other alternative.

Whereas, if this provision could be left as it is for the time being, to a certain extent, at any rate, the demand for the provision contained in the Taft-Ellender-Wagner bill would be eliminated.