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veteran would be where he could not finance it from a bank, and where he was a good risk.

Mr. FOLEY. Yes. I understand that is the legislative history, and intent, as expressed.

Senator MAYBANK. I understand the bill. I wanted to refer back to the hearings.

Mr. FOLEY. That was my recollection of the legislative history, sir.

Senator BRICKER. Will you describe for the record just what a "good risk” would be that couldn't get a loan from the present market with the availability of money that there is in the country?

Mr. FOLEY. I will be glad to try to give you my opinion:

You recall the administration of that activity is not within my agency. Consequently, I can't speak authoritatively for their application of standards or their processing.

I will try to give the best information that I can:

The problem that many veterans appear to be confronted with, according to reports, is not that they do not have a sufficient credit worthiness in themselves, to be allowed credit, or to be allowed a loan, on that basis. In other words, it is not that they would be unworthy of any loan; but rather it is composed of two major factors: one is the interest rate, and the other is quite commonly the ratio of the loan. You will recall that the GI Act permits a maximum of 100 percent as against sales price. The sales price, of course, can be controlled by what is called in the act, I believe, "a reasonable value," which is considered as an appraisal but which is an appraisal in a somewhat different definition than long-term economic value than found by the Federal Housing Administration for mortgage purposes.

For a variety of reasons many institutions, especially small ones, are unable in their own belief and their own practice, to take as many 4 percent loans and still maintain the average of earnings that they believe they need; as might be required to meet the demand of veterans in their community.

Also, many such institutions are unwilling to make loans up to the full 100 percent. Those are the two factors, outside of absolute credit unworthiness in the individual, that according to my best information create the picture.

Senator BRICKER. What about the interest rate?

Mr. FOLEY. Offhand, that might be the answer, although I don't know that I can say for sure.

Senator BRICKER. Yes?

Mr. FOLEY. There are other collateral factors; one being the question of appraisal, on the definition and formula, that the present GI bill seems to require, and the other

Senator BRICKER. You mean the provision being too strict?

Mr. Foley. No; that there it might possibly be construed as too liberal in determination of value.

In other words, what it is, is a permitted sales price, in effect.

The other--and I have no way of knowing to what extent or how generally this might affect the situation-is the question of other standards that apply to the property.

The recent legislation with respect to that operation required, for eligibility in the secondary national mortgage market, application of construction standards, I believe. They were generally required, in

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connection with GI loans, only when they were offered the Fanny May market. But those are construction standards as distinguished from the other standards, credit standards, and so forth.

That, I think, covers the major factors in the situation.

Senator BRICKER. That is all that I have. Thank you, Mr. Chairman.

Senator MAYBANK. I have heard talk about wanting to raise the veterans' interest. Of course, I am

Senator BRICKER. About wanting to do what?
Senator MAYBANK. Raise the interest rate on the veterans' loans.
Senator BRICKER. That is, on the present 4-percent GI loan?
Senator MAYBANK. Yes.

I am wondering if Mr. Foley has any ideas on that. Those rumors have come to me. I would be opposed to that.

Mr. FOLEY. I am sure you understand and appreciate, Senators, that regardless of my personal position or views, the position that I occupy as Administrator of the Housing and Home Finance Agency

ds a certain amount of perhaps unjustified weight to anything that I might say formally and publicly. Any such expressions that may be construed as official predictions, would therefore have considerable effect on the course of lending, either one way or the other, and possibly on other fiscal matters. While I have already indicated in this morning's discussion that the question of what is an adequate interest rate, and a proper one, to maintain the necessary high volume of residential construction, is and always is under study by us, I think at this time I would ask to be excused from further discussion on that topic.

Senator MAYBANK. I wanted to make myself clear: that I have no intention of seeing any veteran's interest raised. I do think the veterans are entitled to some preference.

I would express my personal opinion, as being opposed to anything of that nature. That is all.

Senator SPARKMAN. The trend of interest rates has been downward, has it not, for the last 6 or 8 months?

Mr. FOLEY. You mean in the general market?
Senator SPARKMAN. Yes; in the general market.
Mr. FOLEY. I think there has been some decline; yes.

Senator SPARKMAN. About 6 months ago it was up to practically 2.5 percent, and now it is down to a little less than 2.25 percent.

Mr. FOLEY. Yes.

Senator SPARKMAN. I am not sure in talking about good credit risk whether or not you include this as one of the factors; that there are some areas in which the money simply would not be available.

Mr. FOLEY. On any terms?
Senator SPARKMAN. Yes.
Mr. FOLEY. Yes; I think you will always find that to be true.

Senator MAYBANK. The American Legion, as I recall, last year practically said in places, as the chairman has said, they wouldn't get any money at any price.

Senator SPARKMAN. Yes.
Mr. FOLEY. Yes; I think there are a limited number of areas.
Senator BRICKER. Where would some of them be?

Mr. FOLEY. I would think normally you would find them in sparsely settled districts; very small communities, not served by local lending

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institutions, less frequently in areas that do have lending institutions of their own.

Still less frequently would you find that situation in areas so large that are served not only by large local institutions, but by some national institutions.

Senator MAYBANK. Could we get some areas put into the record before the hearings are over?

Senator BRICKER. Yes.

Senator MAYBANK. Could the Housing Authority give a few illustrations where there would be no banks, where there would be only these other institutions?

Mr. FOLEY. With reference to the particular points, as to the veterans loans, I will be happy to try to secure it for you, which I think I would need to get through the Veterans Administration.

Senator MAYBANK. Will you do so, please?
Mr. FOLEY. Yes.

(The following was received from the Veterans Administration in response to the above:)

JANUARY 20, 1950. Hon. RAYMOND M. FOLEY, Administrator, Housing and Home Finance Agency,

Washington 25, D. C. DEAR MR. FOLEY: In response to the telephone request through Mr. Condon, of your office, there is enclosed a brief statement concerning the availability of home-mortgage finance to World War II veterans in semirural or rural areas. This statement is necessarily inconclusive, partly due to the difficulty of assembling an accurate survey on data of its nature, and partially due to the short time : allowed for its preparation.

Please let me know if you would like this supplemented in any detail which we may have at hand. Very truly yours,

F. W. KELSEY,

Assistant Administrator for Finance. AVAILABILITY OF GI 4-PERCENT LOANS BY GEOGRAPHIC AREAS The VA has no statistical information immediately available of current significance which would give any conclusive answer to the question whether ĞI loan credit is generally available to veterans in smaller communities and semirural areas. It is true that narrative reports from some of our regional offices have indicated that the veteran living in a small town has a more difficult time in exercising his loan guaranty benefit. Indeed, it is generally recognized in the thinking of students of real estate finance that long-term mortgage financing at low interest rates is more difficult to obtain outside of the urban areas.

But it should be emphasized that the reports from VA field offices are not current and may not reflect the changes in the credit situation for GI loans which have occurred in the past few months. For example, the renewed participation by many large insurance companies in GI loan investment should have a helpful effect in spreading mortgage capital into more areas. Similarly, the 1-percent origination charge in lieu of certain closing costs which was recently authorized by a VA regulation change should have a salutary influence upon many banks and savings and loan associations in the less populated areas. The 100-percent market for GI first-mortgage loans authorized by Public Law 387 on October 25, 1949, must also be taken into account as a relevant factor which has not had time to operate. Because of the existence of the more liberal Government secondary market, many mortgage companies are beginning to branch out from the urban centers in their search for loan business.

In short, the problem is not susceptible of a conclusive answer until the influence of the above-mentioned factors can be assessed. Perhaps a restudy of the problem 90 days hence might give a truer picture of the GI loan-credit situation as it . affects veterans living outside the large metropolitan areas.

Senator SPARKMAN. I am sure it can be done. I don't know how the situation is now, but I do know that little more than a year ago we had quite a famine of veterans loans. At that time, I believe the rate of interest was higher-I mean in the general market-and that may have had a decided effect on it.

Senator BRICKER. There is still some spread, but it isn't so high as it was then.

Senator SPARKMAN. In my home town it was virtually impossible to get a veteran's loan.

Senator MAYBANK. I know of places too, but I thought Mr. Foley might put it in here.

Senator SPARKMAN. I think it would be a fine thing.

Senator Douglas, this whole thing was brought up on the suggestion you made this morning. I was rather impressed with an article that I saw in the local papers Sunday about a move that had been taken, or was suggested, by the National Mortgage Association, to set up a private mortgage association among themselves to encourage a greater activity in private lending, and I just wondered if you would care to comment on that. By the way, may I say first that I also saw a report of the special

Ι committee of the National Mortgage Association that had made a study of this matter, and I was very much impressed with some of the things that that committee had said. One thing, for instance, was that they had no right to condemn the great volume of FNMA business without condemning themselves, because they were the ones that had made it possible, and if they wanted to correct that situation they simply had to make certain that money would be available.

It seems to me a rather hopeful move that they are taking, and I just wonder what your comment would be on that.

Senator BRICKER. One question. You mean to create a secondary market of private money contributed by lending institutions?

Senator SPARKMAN. Yes. To pool their resources for the purpose of making private loan money available.

Mr. FOLEY. Senator Sparkman, when you began your reference to a newspaper story, were you referring to one released by the National Home Builders Association? I saw such a release.

Senator SPARKMAN. I thought it was by the National Mortgage Association. Senator Douglas had just handed me the story that was taken from the Star. I believe it is. The particular story that I read was in the Post. But I assume it is all the same. This is the New York Herald Tribune. The reference is to the annual convention of the National Association of Real Estate Boards in Chicago. I believe this is an older story than the one I saw.

The one I saw was in last Sunday's paper; I think here in Washington.

Mr. FOLEY. I think that one referred to a plan that has been under discussion on the part of the National Home Builders Association. There is another under discussion by the Mortgage Bankers Association. Regardless of that, there is evidently a growing, marked interest on the part of the private industry, both the builders and the lenders in the establishment, on a broader and more generally accessible basis of a privately financed secondary market.

As you recall, that was one of the objectives of the National Housing Act itself. At that time, as you also recall, it provided means for the establishment of privately financed national mortgage associations. None came into being in time to meet the situation that developed in the early days of the insured mortgage.

I am advised—I don't know how definitely or how far advanced the plans may be—that there is a very active interest on the part of large pools of private capital for the establishment of a large, or perhaps series of less large, privately financed national mortgage associations to provide this outlet rather than continue sole reliance on public financing.

Senator BRICKER. I suppose the greater market now would be the insurance field; isn't it?

Mr. Foley. That is right. There are, of course, many outlets which constitute presently a privately financed secondary market and a very large volume of mortgages. It is not to be assumed that all of the secondary selling is taking place with the Fanny May. But the private secondary market has not been sufficiently large, sufficiently generally accessible, available. Certainly, it seems to me that any proper move to promote a greater participation of private financing in the secondary market should be encouraged.

Senator BRICKER. Have you figures to show the relative amount of mortgages sold through Fanny May and those sold through private institutions?

Mr. FOLEY. No. We might be able to obtain some figures, but not comprehensive information, from the record of transfers on the insured mortgages of FHA.

I don't know what might be available or through what sources I could get it on the veterans.

Senator BRICKER. I think that would be very helpful.

Mr. FOLEY. Extremely important. I do not know whether the Veterans' Administration has a system of recording transfers, such as the VA has, or the FHA has; if so, we can probably get some information there. I will ask for it.

(The material referred to follows:)

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