Mr. FOSTER. I testified before the House committee and made the same recommendation, and I think they are going to take cognizance of the Senate on that matter.

Senator ROBERTSON. Thank you very much.

Mr. FOSTER. Thank you, Senator.

(The following was received for the record:)

SUPPLEMENTARY STATEMENT OF CHARLES E. FOSTER, DISABLED AMERICAN VETERANS

The following letter addressed to the President of the United States fully explains the position of the DAV with respect to the proposed transfer of the Loan Guaranty Section of the VA to the FHA. The letter follows:

The PRESIDENT OF THE UNITED STATES,

DISABLED AMERICAN VETERANS,

March 1, 1954.

The White House, Washington, D. C. DEAR MR. PRESIDENT: The Disabled American Veterans is alarmed over the recommendations of the Presidential Advisory Committee on Government Hous ing Policy and Programs to transfer certain functions of the Loan Guaranty Seetion of the Veterans' Administration to the Federal Housing Admiinstration, or some other Government housing agency. At every one of our national conventions, for the past 4 years, we have adopted resolutions opposing any move to transfer functions of the Veterans' Administration to other Government departments and agencies.

As a congressionally chartered veterans' organization, we have consistently followed the policy that all veterans' benefits should be administered and directed by a single executive department of the Government. This policy is in complete accord with the platform of the National Republican Party, adopted at the Republican national convention in 1952. It is also in accord with your views as expressed in the state of the Union message to the Congress on January 7, 1954.

The Disabled American Veterans has steadfastly adhered to the above principle because we sincerely feel that veterans' problems and benefits can best be administered by a single executive department, and furthermore, the veteran will get better service under such a policy. We know, from past experience, that when the veterans' program is administered and divided among a number of executive departments that service to the veterans suffers and that the cost to the Government increases.

We sincerely trust that you will not take any action to transfer the functions of the Loan Guaranty Section of the Veterans' Administration to other executive departments.

Sincerely,

HOWARD W. WATTS, National Commander.

Senator ROBERTSON. The next witness will be Mr. M. K. M. Murphy, representing the United States Savings and Loan League.

STATEMENT OF M. K. M. MURPHY, PAST PRESIDENT, AND STEPHEN SLIPHER, STAFF VICE PRESIDENT, UNITED STATES SAVINGS AND LOAN LEAGUE

Mr. MURPHY. I am M. K. M. Murphy and I appear here as past president of the United States Savings and Loan League and vice chairman of the league's legislative committee. Our 62-year-old league is a nationwide organization which represents about 90 percent of the $27 billion savings and loan business, serving more than 15 million savers and homeowners in the country. By way of further personal identification, I live in Rutherford, N. J., and I am president of the Boiling Springs Savings and Loan Association, which is a relatively small neighborhood New Jersey financial institution with

$10,700,000 in assets and about 18 employees, serving 17,000 folks in

our area.

My colleague this morning in Stephen Slipher of the staff of the United States Savings and Loan League in Washington.

The Housing Act of 1954 is largely a home-financing bill and since savings and loan associations finance more homes than any other type of financial instiution we naturally have a very deep interest in this measure. The importance of our member savings associations in the home-financing field can be underlined by noting that last year savings and loans made 38 percent of all of the home loans in the country, helping over 1 million families to homeownership.

The approximately $712 billion of loans made by our institutions last year was greater than the combined total of all FHA and GI loans made during the same period. It is also a larger sum by about $1 billion than the combined home loans made by commercial banks, savings banks, and insurance companies last year.

There are two other characteristics of the savings and loan operation which I wish to emphasize. Savings and loan associations are homefinancing institutions first, last, and always. About 82 percent of our assets are invested in home mortgages. Unlike most other financial institutions we have always realized, and still do, our obligation to the concept of individual homeownership and thus deemphasize any alternative investments which may be available to us; thus we are constantly in the home-mortgage market.

There have been several times in recent years when changes in the Government bond market have caused a sharp reduction in the homelending activity of some of the other types of financial institutions. Another characteristic is that savings and loan associations are the only home-financing institutions that do not place primary reliance on Government guaranties or insurance of home loans. We make 75 percent of our home loans entirely on our own judgment and responsibility. All but 5 percent of the remaining loans are GI loans. We have actively cooperated in the GI home-loan program where, as the committee knows, a special act of Congress has provided a method for relieving veterans of World War II and the Korean conflict of the normal downpayment requirements.

Title VI. Savings and loan amendments: Since title VI of the bill deals directly and exclusively with savings and loan associations, I should like to comment on that section before addressing testimony to the remainder of the bill. This title provides technical and minor adjustments to savings and loan law and also adds a new provision with respect to conservator and receivership procedures.

Section 601 is a technical change having to do with the right to sue the Federal Savings and Loan Insurance Corporation. Section 602 is an adjustment in the size of the maximum loan which Federal Home Loan banks may accept as collateral and section 603 (1) makes the same adjustment in maximum loans by Federal associations. We support these changes.

Section 603 (2) amends subsection (d) of section 5 of the Home Owners' Loan Act to set forth in detail the procedures under which the Home Loan Bank Board may enforce its supervisory directors and appoint conservators and receivers, and it also sets forth the rights of the Federal savings and loan associations involved.

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The United States Savings and Loan League has given very important study to this matter for a number of years and we feel that it is very important that adequate provisions be set forth in the statute. There have been numerous conferences by our league with the Home Loan Bank Board, with various groups within the savings and loan business, and with some Members of Congress. The results of such conferences are reflected to a great extent in the language contained in this bill. We very definitely support section 603 and urge its

enactment.

The United States Savings and Loan League quite naturally has a comprehensive legislative program of suggested changes in the savings and loan law. We realize that it is not appropriate to suggest the addition of elaborate legislation affecting our savings institutions in a general housing measure and accordingly we will ask the committee at some later date to give consideration to our overall program. There are, however, four minor items which tie very closely to the purposes of the housing act and which we suggest could and should properly be included in the present measure. I have included at the end of my statement specific language to accomplish the amendments desired. The four items are:

1. Increase in the ceiling on property improvement loans by Federal associations to $3,000, which change is consistent with section 101 of S. 2938.

2. Permit Federal associations with 5 percent reserves, or greater, to invest up to 10 percent of assets in homes and homesites and to make loans on land which is to be developed into housing. The purpose of this section is to permit Federal associations to engage directly in redevelopment and rehabilitation of housing and thus play a more important part in the urban renewal program set forth in the currently proposed housing act.

3. Shorten the name of the Federal Savings and Loan Insurance Corporation to the Federal Savings Insurance Corporation. Senator Sparkman has introduced S. 286 to accomplish this change. Such a provision passed the House of Representatives in the 81st Congress.

The purpose of the provision is merely to simplify the name of our insuring agency and to avoid the public misunderstanding which results from the use of the word "loan." The Insurance Corporation only insures the savings in our institutions and yet frequently the public feels that it is a loan insurance.

4. An amendment which would change the formula for the accumulation of reserves in insured associations. The new formula would be based on net income and would not change the present mandatory 5 percent reserve requirement. It would result in somewhat greater accumulation of reserves and would also provide for additional reserves beyond the 20-year requirement.

We believe that these four provisions will help our savings institutions play a greater part in accomplishing the objectives of the Housing Act.

Title I. FHA: The first sections of title I deal with FHA propertyimprovement loans. These adjustments in ceiling and maturity will assist in the repair and rehabilitation of housing and thus implement the urban renewal program in the bill and we support them. The FHA title I program is, in our opinion, established on sound insur

ance principles in which, as should be, the lender shares the risk and the premiums cover the cost and the necessary reserves for losses.

The remainder of title I deals largely with the basic FHA program of loans for new and existing homes. The new provisions provide for a liberalization of loan-to-value ratios, increases in maturity to 30 years, higher mortgage ceilings, and a significant new provision which permits the same liberal loans on existing homes as on new houses. It would appear that certain of these provisions have been drawn in the belief that the construction and home-building industry is entering a recession. Such a belief is certainly open to serious question.

Home building is off to another banner year and our studied opinion is that, without any new legislation at all, more than 1 million new houses and apartments will be built in 1954. Last month, February, there were 71,800 private housing starts which is at an annual rateseasonally adjusted-of 1,180,000.

During the past year there was a great deal of discussion of making the FHA program a truly self-supporting private-enterprise operation, conducted on sound insurance principles. Basically the bill moves away from, rather than toward, a more private-enterprise operation and a sounder FHA.

Realizing the dangers to the stability of our economy which might very well eventuate from the placing of further strain on the nonetoo-strong existing reserves of FHA, may we express concern over the proposed liberalizations in this title. According to statement 9 on page 369 of the Sixth Annual Report of the Housing and Home Finance Agency, the FHA title II operation has reserves of $122 million against loans and commitments with an outstanding balance of $10,600,000,000, a ratio of approximately 1.2 percent. It will be found that the loss reserves of the several types of financial institutions will run many times the latter rate. For example, savings and loan associations and cooperative banks have reserves of approximately 112 percent of the outstanding balance of their conventional loan. Not only is the reserve position of the FHA nominal in proportion to its contingent liabilities, but it is to be noted that this bill would increase the risks of FHA by extending loan maturities to 30 years, by increasing loan ratios to 95 percent and, most importantly, by substantially increasing the amount of FHA insurance that may be permitted on older houses. The reason our reserves are higher is that we place about 1.1 percent of loan balances aside each year to meet possible future losses, whereas the FHA collects only one-half of 1 percent and puts into reserves even less than one-half of 1 percent.

We realize that there has been, and will be, a great deal of testimony in favor of this title, but we feel it only right to call the committee's attention to the substantial increase in risk to the Federal Government which will result from liberalization of loan terms in the face of the present limited reserves.

Experienced and sound mortgage lenders sincerely believe that the FHA should gradually move toward, and not away from, financial solidarity and permanence. We are well aware of the frightening and disheartening repercussions to our national economy in general, and the $12 billion home-building industry in particular, should FHA, because of inadequate reserves, get into financial difficulties or become insolvent.

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We seriously question the wisdom of liberalizing the terms on loans on existing homes. This is a field in which most lending is now conducted without any liability to the Federal Government, and there should be a great deal of caution in unnecessarily involving Federal credit in this area. May we also point out that in the case of existing homes the long-term maturities and high loan-to-value ratios are of very questionable economic soundness. We doubt the advisability of 30-year maturities even in the case of new homes, much less existing homes, when consideration is given to the useful life of property, the fact that one-fifth of the American families move from one residence to another each year, changes in family size, and the probable earning capacity of the typical borrower.

During past consideration of the FHA program we have urged and hoped for some program, at least a gradual one, which would provide for some sharing of risk by lending institutions to the end that the Government's potential liability could be gradually reduced rather than constantly increased.

This bill actually increases the Government portion of the risk and decreases the lender's portion by liberalizing foreclosure allowances and by shortening the term of the Government guaranteed FHA debentures that are issued in payment of losses.

There are two new titles of FHA provided in the bill, known as sections 220 and 221. The new section 220 loans are really a relaxation of other FHA loan sections, and our position would be the same as already described.

The new section 221 provides for the 40-year, 100-percent loans to families displaced by slum clearance or urban renewal activities. Obviously the 40-year loan term is uneconomic and unrealistic and these loans will be made only with the most generous and costly support from the Government.

Much of this support is provided in the bill. We feel that such loans may be made. We do feel, however, that this section amounts to virtually direct lending by the Government, a principle which we have always opposed and which Congress has approved to date only in the case of veterans' loans in rural areas.

We studied the new section 221 quite sympathetically during the past months in the belief that it was to be offered as an alternative or substitute for the public-housing program. In spite of its many dangers it does have an advantage over public housing, in our opinion, in that public ownership of property is not involved and that there is some semblance of homeownership.

However, the program is not offered in the bill as a substitute for public housing, and we understand that the administration is asking for 35,000 public-housing units this year as contrasted to the 20,000 which the Congress approved last year.

Title II. Mortgage interest rate terms: Under this title the President could adjust the interest on FHA and GI loans within a range determined by the going rate on Government bonds. The need for some method of adjusting interest rates in keeping with general interest-rate patterns has been recognized for years as the only practical way in which to avoid recurring periods of feast and famine in the GI and FHA programs. We support this section except that we sug gest that the decision on interest rates should be made by a specified