Are we going to wait until then and have an RFC to bail them out, or have this program ahead of time?

Senator BRICKER. One other thought: That is, this is not creating a deficit insofar as the Government puts money into the works, but it is adding to the deficit.

Mr. THOMPSON. Precisely.

Senator BRICKER. If there is any deficit financing in this program, we have a deficit now. We will have one next year, which will ultimately destroy our local economy; government as well as private economy.

Senator SPARKMAN. There is this difference, though, between this program and FNMA, which you people had advocated: We take money out of the Treasury for FNMA.

Mr. THOMPSON. The National Association of Real Estate Boards is very much opposed to FNMA. That is one certain point.

Senator SPARKMAN. I will say the Mortgage Bankers Association, then. Many of the people who take similar views that you do with reference to this legislation are very strongly in favor of FNMA.

When we vote funds to FNMA, we actually increase the national debt.

Senator BRICKER. There isn't any question about that. That is dangerous, too. On the face of it, it should be guarded against. We don't want to make FNMA or any other finance program a dumping ground for unsound securities.

Mr. THOMPSON. That is precisely what it is. We don't sell it a sound mortgage. It has no alternative but to buy what we offer. Senator SPARKMAN. Let's not make it that strong. It does provide that you certify that they are good mortgages.

Mr. THOMPSON. Good

Senator SPARKMAN. I think you are required to certify to that.
Mr. THOMPSON. Good in what sense?

Senator SPARKMAN. So far as you know.

Mr. THOMPSON. How do we know that 10 or 15 years from now the property

Senator SPARKMAN. Of course

Senator BRICKER. Good as of today.

Senator SPARKMAN. That is as much as anybody could ask.

Mr. THOMPSON. May I make this statement: That the association which I represent this morning was the only trade association in the building industry that heartily supported the establishment of the Federal Housing Administration at its inception.

Senator SPARKMAN. Of course, you are here in more or less two capacities.

Mr. THOMPSON. No one

Senator SPARKMAN. The one you speak officially for supported the FHA.

Mr. THOMPSON. Precisely.

Senator SPARKMAN. Was that the only trade association which did support it?

Mr. THOMPSON. Yes.

As for the Mortgage Bankers Association, I am an extinct president. Senator SPARKMAN. Yes.

Thank you very much, Mr. Thompson.

Mr. Oscar Kreutz, please.

Mr. Kreutz, will you identify yourself for the reporter, and then just present your testimony in your own way.

We are glad to have you with us.

STATEMENT OF OSCAR R. KREUTZ, EXECUTIVE MANAGER OF THE NATIONAL SAVINGS AND LOAN LEAGUE

Mr. KREUTZ. Thank you, Mr. Chairman:

Mr. Chairman and members of the committee, my name is Oscar R. Kreutz. I am executive manager of the National Savings and Loan League. On behalf of the league I thank you for this opportunity of making a statement in regard to the proposed amendments to S. 2246, to provide for the creation of a National Mortgage Corporation for Housing Cooperatives and for the guaranty of the bonds of the Corporation by the United States. The National Savings and Loan League represents a substantial and growing segment of the savings and loan business. Our member institutions are located all over the United States.

Last year, as also in 1948, savings and loan associations made more than 3.5 billion dollars of loans to finance homes of our people. Mortgages held by our institutions represent approximately one-third of the urban mortgage debt of the country. In number they represent many more than one-third of the mortgaged homes of America.

Traditionally savings and loan associations have financed the homes in the medium- and low-priced field for people in the lower income brackets. In fact, our institutions are often referred to as the "poor man's banks."

We have a deep interest in this proposed legislation. Our interest stems from a long and favorable history of more than a century of encouraging thrift and assisting American families to acquire homes of their own.

Certainly we have no objection to cooperative enterprise. Savings and loan associations are themselves private cooperative undertakings. Most of them are mutual institutions where many people join together for the common good and the individual's gain. Through these cooperative efforts many millions of people have learned to practice thrift and additional millions have eventually found themselves in debt-free ownership of homes. Our institutions have had a major part in bringing about the very high percentage of home ownership in this country over 51 percent. Our institutions have also contributed, largely through our long-established monthly amortized loan plan, to the fortunate debt-free condition of so large a portion of America's homes. The figure given by the Federal Reserve Board is 55 percent. Traditionally our institutions have also encouraged lower costs of homes and of home financing. Our institutions have supported programs for, and also taken the initiative in, the reduction of interest and other home-financing costs and the reduction in the over-all carrying charges on home loans.

As a matter of fact, the only element in the cost of home buying that has declined appreciably for more than a decade is the cost of home financing. Interest rates of home financing are only two-thirds of what they were prior to the war, and yet all other costs have risen substantially during the same period. Many have doubled. Some have gone even higher.

Moreover, there is a point below which home-financing costs in the form of interest and necessary initial charges cannot go if we are to maintain in this country a system of private enterprise for the building and financing of homes. Interest rates on mortgage loans are depending on the rates of return necessary to attract thrift capital. For example, if the public generally were satisfied to take a 1 percent return on their long-term savings, our institutions could lend their funds at 3 percent or less, and would be glad to do it. But they cannot do the impossible by making the money available at or less than cost. There is also the necessity, as you well know, of building reserves against possible losses resulting from lending operations. It seems clear that building costs and not interest rates are the real problem faced by the potential home buyer these days, and yet building costs themselves, high as they are, are the effect of the postwar inflation. The largest single item in the cost of building a home is labor. As we all know, the wages paid for the labor that goes into a house both on the site and in the mills and factories which produce the materials are substantially higher than they were before the war. We are not recommending that these wages be reduced for they must be consistent with the costs of consumer goods. Possibly some of the profits of some contractors and subcontractors became higher than normal during the period of acute shortages of housing supply against abnormal demands for housing. If this were true, a fast-increasing competition will soon squeeze out any excessive profits.

But again I wish to emphasize that it is the total cost of a finished house that is the greatest deterrent to home buying and lower rents. It is also a fact that many potential buyers have held off even if they had the money with which to buy or build new homes, because of their expectation that costs would decline. Costs have declined somewhat, but are leveling off.

It is our understanding that the purpose of the proposed legislation is to make it possible for more people to acquire homes because of anticipated reductions in monthly carrying charges. It is our understanding that reduced monthly carrying charges would be brought about by extending the term of financing and by reducing the interest rate. Possibly the term of financing can be extended safely. However, I am sure this committee would not wish to see a large segment of our population assume mortgage indebtedness far in excess of the capacity of individual families as the result of the deluding influence of so-called easy payments.

And if housing cooperatives build rental housing and the rental rates are established on the basis of very long term financing, such enterprises probably some day will have to go through the wringer in order to adjust their debt load to the then economic rent level. And our Government would pay the bill under this proposal.

It is our understanding that the funds which would be advanced by the National Mortgage Corporation for housing cooperatives to the local housing cooperatives would be obtained by the sale of the Corporation's obligations with a full guarantee of principal and interest by the United States. We do not see any difference between the net effect of such financing and the making of direct loans by the Government. We must oppose in principle a Government guaranty of the obligations of the proposed National Mortgage Corporation

just as we have in the past opposed proposals for direct Government loans to housing cooperatives.

In our considered judgment there is no need for this proposed legislation. Private institutions have always financed low-income groups including those which this legislation is designed to assist. Millions of homes have been bought and paid for by families with incomes in the lower levels of the middle-income group. Yes; and by families in the lowest one-third income group. It is very true that such families which have bought and paid for homes have had to deny themselves some of the luxuries of life temporarily. They haven't been able to buy the latest model automobile nor many other gadgets, but they have had the real satisfaction of becoming home owners with all the security which debt-free home ownership brings.

We have asked a representative group of institutions located all around the country to supply us with data regarding their lending to finance homes for the lower-income families. I regret to say that because of the short time since we requested these facts we have not yet received any substantial number of reports. I would like, however, to have the privilege of filing with the committee for the record the results of our survey on this very important question.

Senator SPARKMAN. That will be done. We will be very glad to have it.

Mr. KREUTZ. Meantime, I would like to tell you about one report which came in yesterday. This is from a savings and loan association on the west coast. Last year that association made 750 loans totaling $6,000,000 to finance the construction of new homes for veterans. The prices of these completed homes ranged from $7,500 to $8,500; 80 percent were under $8,000. They were sold to families with an average monthly income of $275 or $3,300 per year. The average monthly payment including all charges is $50. These loans were made for 25 years at 4 percent interest without any down payment, and all are guaranteed by the Veterans' Administration. These houses range in size from 750 to 825 square feet. Each house has two bedrooms, a living room, a dinette, a kitchen, an electric refrigerator, a gas range, and an electric washing machine. Each house is described as being of No. 1 California construction with wood shingle roof and oak floors. A garage went with each house.

Senator BRICKER. Was the garage in the cost?

Mr. KREUTZ. Yes. I think perhaps those costs would be higher on houses built in this area, or most of the areas in the east.

Senator BRICKER. They are a little higher in the Middle West, too? Mr. KREUTZ. Yes. I would estimate that a similar house without the garage would cost $1,000 more.

The same institution expects to finance, and in fact has already made commitments on a substantial portion of 1,000 similar units, totaling $8,000,000 in 1950. In most areas of the country there is an adequate supply of funds at reasonable interest rates to finance low-cost houses of this general type for people of low incomes.

There are many existing aids for the encouragement of home construction such as we have never had in the history of our country. You are familiar with them. There are various Government aids in the development of new and better materials for home construction. Under the bill of rights-the GI bill of rights-provisions are made for the 100-percent financing of homes for veterans. Under the

National Housing Act there are various types of liberal FHA plans which have encouraged home building in large volume. The Federal Home Loan Bank System with total resources of three-fourth billion dollars is functioning successfully and efficiently in providing a reservoir of credit for its member institutions which number nearly 4,000 and whose assets total 14 billion dollars. These local institutions are located throughout the United States and in our Territories. Senator BRICKER. There is no inference that there are not many private research programs being carried on?

Mr. KREUTZ. No. I think they are much more extensive than are the Government programs; but I wanted to emphasize the things that the Government has already done in this field.

Senator BRICKER. Not only in the private field, but many of the colleges and universities are doing very extensive research in the field. Mr. KREUTZ. Yes.

Senator BRICKER. Many of the larger plants are doing a tremendous amount of research at the present time in home building. Mr. KREUTZ. That is right.

Senator BRICKER. Yes.

Mr. KREUTZ. In many of those cases, Senator, there are plans which have for their purpose the integrating of that material and of the collaboration of those groups so as to eliminate overlapping and some of this guidance is being provided now by the Government in the Department of Commerce.

In addition, the Congress has seen fit to pass the Housing Act of 1949 and the Public Housing Administration is now busily engaged with plans for increasing the housing supply for the lowest income groups.

And so I respectfully submit that there is no need at this time for the proposed legislation.

While lower costs are apparently one of the purposes of the proposed legislation, we cannot see how any substantial saving in costs can result from cooperative housing. The cost of professional services would not be decreased, and the contractors who would undertake to build the projects after bidding in open competition would, we assume, have to make a reasonable profit to stay in business. It is true that in some instances the services of an entrepreneur would not be required. That, of course, is assuming that these cooperatives would spring up under their own initiative and that their developers would require no compensation for their time and efforts. However, we suggest that the entrepreneur has been a very useful individual in our system. Certainly we can attribute our present high standard of living to the progressive, aggressive, and successful entrepreneur in every line of business. He has been willing to spend time, money, and energy, and take risks.

While we have no specific data to support the opinion, we do feel as a result of many inquires we have made around the country that construction costs in cooperative housing projects will in many cases exceed those of the traditional and orthodox type of undertaking. The reason is obvious. A housing project that has to please a large number of people, namely, the members of the cooperative undertaking, may easily result in higher costs than exist in the case of the standardized and, shall we say, hard-boiled management of the individual or corporate developers.