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FHA mortgages are paid off in debentures, whether or not that interest factor gives to GI mortgages a certain advantage, in sales on the market?

Mr. DOWNER. I don't believe I am qualified to answer your question, Mr. Deane. I have had no experience at all in the mortgagefinancing field, other than some experience in farm-mortgage financing. I really don't have enough knowledge of the actual operation of that phase of the VA program to answer your question.

Mr. DEANE. That is all, Mr. Chairman.

The CHAIRMAN. Mr. Downer, I don't know whether this interests you particularly, but I think the record should be clarified in one particular point. You got your information from the counsel of the Veterans' Affairs Committee, I believe.

Mr. DOWNER. Yes.

The CHAIRMAN. As to discounts.

Mr. DOWNER. Yes.

The CHAIRMAN. And these discounts out on the coast would run as high as what, did you say?

Mr. DOWNER. My recollection, Mr. Chairman, was as high as 6 percent, 4, 5, and 6 percent. I am merely testifying from my recollection of what the counsel told me, and if you wish, I will be glad to check with him.

The CHAIRMAN. I don't think it is necessary. The point that I want to make is this: In a colloquy between you and Mr. Patmanand I think I only need to call this to Mr. Patman's attentionunder the law, that discount, or any sum which the mortgagee has to pay in to the capital stock or otherwise, of FNMA, under the law cannot be passed on. It just cannot be passed on. That is under the law.

Mr. PATMAN. It cannot be passed on.

The CHAIRMAN. That is correct.

Mr. PATMAN. Who will pay it?

The CHAIRMAN. The builder or the financing institution.

Mr. PATMAN. Well, Mr. Chairman, I respectfully suggest that the borrower will pay it for the same reason

The CHAIRMAN. Mr. Patman, he can't pay it under the law.
Mr. PATMAN. There won't be any loans made, then.

The CHAIRMAN. Yes, there will be. Because the veteran gets a certificate of reasonable value from the Veterans' Administration, and that determines the amount of the loan.

Now, what happens after the loan is made doesn't affect that certificate of reasonable value to the veteran. He can't have passed on to him any discount or charges which are directly or indirectly placed upon the builder or the financing institution.

We can't assume that the Veterans' Administration-as a matter of fact, I think we surely should have to take some very drastic action if the Veterans' Administration, in the determination of the reasonable value of a property, should add to its CRV the probable discount, and the 3 percent referred to. I surely don't want to charge the Veterans' Administration with collusion to the point where they would raise the reasonable value of the house for mortgage purposes by this 8 or 9 percent that Mr. Patman referred to. I think before you follow that through, I might suggest that you read that law, Mr. Patman.

Mr. PATMAN. I concede, Mr. Chairman, that it is a beautiful theory, but an impractical one. The borrower will pay that, one way or another. That is my honest belief, and I am basing it upon the testimony of the witnesses. As disclosed, not a single builder said he would pay that. Not a single builder testified to anything else.

The CHAIRMAN. Don't get on FHA mortgages, let's confine ourselves to VA mortgages.

Mr. PATMAN. I am talking about the new and rejuvenated Fannie May.

The CHAIRMAN. I am talking about the VA mortgages, and the illegality of passing on the discount, or this 3 percent, or whatever the committee might agree upon, to the borrower in the case of veterans' loans. It is just impossible, unless we change the law and permit them to do it. I don't assume the committee will recommend any such change in the law.

Mr. PATMAN. Well, may I suggest to the witness, he was expressing a hope that something could be done to the VA system, so a veteran on the west coast, or in the Southwest, could get mortgage money at the same rate as veterans in New York and New England?

Mr. DOWNER. Yes, sir.

Mr. PATMAN. The answer to that is a good, adequate, secondary mortgage market, and that could be established right here in Washington, D. C.

The CHAIRMAN. I think we are in agreement that that is a very desirable objective, but I merely wanted to get into the record this truth about existing law, because I think at least there was an implication in your remarks that this discount, or premium payments, or whatever we want to call them, paid into Fannie May, would be passed on to veterans.

Mr. PATMAN. I think there is a difference of understanding there, Mr. Chairman. I didn't mean to say that the veteran would just put it on the barrelhead in actual cash.

The CHAIRMAN. You said it would be passed on to him?

Mr. PATMAN. I say the borrower will pay that one way or another. The CHAIRMAN. They couldn't under the law, Mr. Patman, unless there was collusion between the veteran, the builder, and the Veterans' Administration. There might be, conceivably, collusion between the veteran and the builder, but we can't assume that the Veterans' Administration is going to be a party to this collusion, to raise the value. of the property 8 or 9 or 10 percent above what it really is worth.

The mortgage is predicated upon the certificate of reasonable value, not upon any agreement between the veteran and the builder or the financing institution. That is the value which the Veterans' Administration puts on it, and there can be no deviation from that with respect to the mortgage.

Mr. PATMAN. I want to suggest that on March 3, 1954, Mr. Cole was testifying before this committee, and Mr. Hays of Ohio, asked him this question:

Mr. HAYS. I ask this in a very friendly way. Have you had much experience with appraisal work?

Mr. COLE. No; very little, Mr. Hays, and I know in a very friendly way what you are saying, namely, that appraisals can vary. And I am well aware of the fact that sometimes appraisals vary, having to do with the need to accomplish a specific objective. I realize that.

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That is the testimony of the man in charge.

The CHAIRMAN. If you go to the testimony of Mr. King, Mr. Patman, you will get there that Mr. King testified that this is giving them no problem at all. Assuming that Mr. King in his appraisals were going to be guided by the facts, and not any factors which would increase or pass on to the veteran financing charges which were not a proper part of the appraised value.

Mr. PATMAN. Well, I stand on my statement that it will either be passed on to the borrower, or the loans will not be made. And I challenge anybody to present any builder in the United States of America who will say anything else.

The CHAIRMAN. Then you don't object to my statement that I stand upon the law in this respect?

Mr. PATMAN. I certainly do not.

The CHAIRMAN. We are in agreement to that extent, then, Mr. Patman.

Mr. PATMAN. You have your opinion and I have mine.

The CHAIRMAN. All right, Mr. Downer. We are very grateful to you for your testimony.

Mr. O'BRIEN. Mr. Chairman, I have a question.

The CHAIRMAN. Mr. O'Brien.

Mr. O'BRIEN. Within your own knowledge, what is the practice of passing it to the veteran purchaser?

Mr. DOWNER. Well, sir, at the present time, in a great many areas,

there still are discounts.

Mr. O'BRIEN. That are passed on to the purchaser?

Mr. DOWNER. Well, you execute a note for a thousand dollars, and you only get, say, $940 or $950 or $960-the veteran actually pays that. The CHAIRMAN. He gives a note in connection with the mortgages, doesn't he?

Mr. DOWNER. Yes, sir.

The CHAIRMAN. And that mortgage is determined on the certificate of reasonable value as set by the Veterans' Administration?

Mr. DOWNER. Yes, sir.

Mr. PATMAN. Determined as Mr. Cole, Administrator, said.

The CHAIRMAN. No; determined as Mr. King said.

Mr. PATMAN. The appraisals are sometimes made to reach a specific objective.

The CHAIRMAN. Mr. Cole has nothing to do with VA loans. He has nothing to do whatsoever with VA mortgages.

Mr. MULTER. FHA inspectors inspect and certify them. Not in all cases, but in some cases. Wherever they have FHA facilities available, VA uses their facilities.

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

Mr. DOWNER. Thank you, Mr. Chairman.

The CHAIRMAN. We next have Mr. Charles E. Foster, legislative representative of the Disabled American Veterans.

Mr. Foster, we are very glad to hear from you.


Mr. FOSTER. Thank you, Mr. Chairman.

Mr. Chairman and members of the committee, the Disabled American Veterans is appreciative of the opportunity afforded us to appear before you this morning relative to our position on the bill H. R. 7839, the Housing Act of 1954. Our interest in the bill before you is confined to those provisions which have a bearing, directly and indirectly, on the home-loan program of the Veterans' Administration, and the housing preferences accorded veterans by existing law.

In enacting Public Law 346, commonly known as the GI bill, together with its amendments, the Congress has enabled approximately 414 million World War II and Korean veterans to acquire residential and farm dwellings for themselves and their families. Time has proven that the home-loan provisions of the GI bill has been both a social and economic gain to the Nation as a whole. Socially, because it has enabled millions of young veterans to start their families in the environment of a new home; economically, because it has been a stimulus to the building trades and the repayment record of these veterans' loans is without equal in the history of lending institutions.

At the present time there are still many millions of World War II veterans and Korean veterans who are now, or shortly will be, in the market for homes or farms, under the same credit terms. The DAV is alarmed that the amendments to title II of the National Housing Act, as proposed by H. R. 7839 will impair the credit preference veterans now enjoy by extending virtually the same preference to nonveterans as well. In other words, if the Congress extends this credit preference, as provided in the bill, to everyone the preference will cease to exist. As a veterans' organization we are irrevocably committed to the proposition that veterans are a special class. Operating on this premise, we must necessarily oppose the cancellation of a veterans' preference by the somewhat unique approach of extending such preference to everyone. We may be criticized that this is a selfish position to take but, as an organization representing America's wartime disabled, we sincerely feel that we have no alternative.

We are likewise opposed to section 201 of the bill, beginning on line 9, page 40, of the bill. If enacted, it would authorize officials of the executive branch of the Government to regulate the maximum interest rate which may be established from time to time on residential and farm mortgage loans guaranteed by the Veterans' Administration. The section provides that the rate of interest may not exceed 21⁄2 percent plus the annual rate of interest determined by the Secretary of the Treasury by estimating the average yield to maturity on outstanding marketable obligations of the United States having remaining maturity of 15 years or more, adjusted to the nearest one-eighth of Ĭ percent.

The DAV vigorously opposed the increase in the rate of interest of GI guaranteed home and farm loans from 4 to 42 percent. We have the utmost confidence in the elected Representatives of the people serving in the Congress of the United States and deplore the delegation of authority by Congress to officials in the executive branch of the Government to tamper with the interest rate on GI home loans. We have to recognize that such officials are far more susceptible to pressure

from groups seeking an increase in the interest rates and we sincerely believe that if the Congress had not delegated authority to the Administrator of Veterans' Affairs and the Secretary of the Treasury to increase rates of interest on GI home and farm loans that the rates today would still be 4 percent.

If the provisions of section 201 had been in effect during the calendar year 1953 the interest rate on GI guaranteed loans would have been 514 rather than the prevailing 4 and 4% percent. On the basis of the number of loans guaranteed by the Veterans' Administration during this time, the increased cost to the veteran would have aggregated $429 million over the life of the loans. Looking at it from another angle, and taking the figure of $9,480 as the average loan made to veterans in 1953, the increase in the interest rate from 41⁄2 to 514 percent would have cost each veteran an additional interest payment of $932.83 for a 20-year loan. The increase in interest during the first year on a 20-year loan in the amount of $9,480 would have been $70.72.

We therefore urge the Congress not to take any action which might tend to increase the interest rate on GI guaranteed loans by delegating authority to the executive branch of the Government to fix or determine the prevailing rate of interest. We should remember there are still many millions of veterans in this country who will be in the market for homes and farms within the next few years. These veterans should have the same opportunity as those who have already used their entitlement to GI guaranteed loans.

The DAV endorses the provision contained in section 203 of the bill to repeal section 504 of the Housing act of 1950, as amended. At the time of the adoption of section 504 the DAV urged the Congress not to enact it because it would take away from the Veterans' Administration the authority to regulate the fees and charges that lenders may impose directly against veterans obtaining GI guaranteed loans. We still believe that the Veterans' Administration should have such authority and, therefore, recommend that the committee favorably consider section 203 of the bill.

Title VIII of the bill would appear to eliminate the preference accorded veterans by existing law to acquire Government-built housing. Inasmuch as this preference is of but 30 days' duration we cannot see any justification for discontinuing the present veteran preference in the acquisition of surplus Government-built housing.

In addition to the foregoing, we present for your consideration a proposed amendment to section 502 (b) of the Housing Act of 1948. Under section 502 (b) of the Housing Act of 1948, the Public Housing Administrator, at his discretion, can exclude the amount paid to veterans for service-incurred disability or death in determining eligibility for admission to public-housing units. However, disability and death compensation is considered as income in determining their rent of such prospective tenants. We recommend to the Congress that section 502 (b) of the Housing Act of 1948 (42 U. S. C., sec. 1404 (a)) be amended, by adding at the end thereof the following:

In determining net income for the purpose of establishing the rent to be charged a tenant in a low-rent housing project assisted pursuant to the United States Housing Act of 1937, the Public Housing Administrator shall exclude any amount paid by the United States Government to such tenant for disability or death occurring in connection with military service.

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