It does not appear that the opportunity to exchange for debentures those mortgages in good standing after 20 years will involve any net expense to the insurance fund. Such mortgages, after 20 years of favorable payment experience. would be unlikely to become defaulted and have unfavorable experience in later years. This circumstance should both facilitate sale of the mortgages by FHA and also enable profitable experience by FHA for the period during which the mortgages were held by this Agency. During any time period that these mortgages are held by FHA, the collection of interest and service charges could be expected to compensate FHA for the interest expense on outstanding debentures and administrative expense in acquiring and servicing the mortgages as well as any insurance losses from whatever small proportion of these properties may have to be foreclosed. With respect to the project mortgages, it may be noted that the amortization pattern would probably be the same as is now used for 40-year mortgages insured under section 207. Because of the low rental levels which would obtain for these projects, both foreclosure rates and loss rates on acquired properties should be moderate. Senator ROBERTSON. Are there any questions? Senator SPARKMAN. Mr. Chairman, I would like to ask 1 or 2 questions. However, I would be glad to yield to Senator Lehman and Senator Frear if they have questions, since I was late coming in. Senator LEHMAN. Mr. Chairman and gentlemen, I have been receiving a good many letters from constituents who have heard over the radio and television and newspapers certain things about the housing bill. These letters say they cannot afford to buy a home although they desperately need one. They have seen the propaganda, of course, to the effect that the new bill will permit the purchase of homes with no downpayment and 40 years to pay, and actually want to take advantage of these terms. We know that these 100 percent FHA mortgages are restricted to the relatively few persons who are dispossessed as a result of slum clearance, rehabilitation, or other Government acts. The general public doesn't know that. I am interested in whether you can tell me, in your reading of this bill, if you see any other provisions in the bill, particularly the FHA amendments, which would permit any substantial reduction in downpayments, and if so, to what extent. Also whether there will be any increase in the demand for those mortgages which will permit these young people who have been led to believe they can get these homes with no downpayment and on a 40-year basis, to really get housing? It sems to me that we havn't provided that in this bill. Mr. MURPHY. That, of course, is limited to the $7,000 loan, the 40 years, 100 percent. We feel I am not sure that other folks in the financial field in the country agree with us, but we feel some of these loans will be made. I am not sure the program will be completely effective. It will be a little difficult in the North to finance a home with a ceiling of $7,000, but we do feel within our business a reasonable number of those loans will be made. Not only in the savings and loans, but by the savings banks and commercial banks. Senator LEHMAN. There has been a suggestion that that ceiling of $7,000 be raised to $7,600, with discretion on the part of the Administrator to add $1,000. In other words, making a ceiling of $8,600. Would that, in your opinion, greatly increase the likelihood of the building of these homes? Mr. MURPHY. Well, of course, in all frankness, Senator Lehman, we don't believe in this section of the bill, but to the extent that it is going to stay in the bill, certainly raising it to $7,600 would be a more equitable situation throughout the whole country and should make more of the loans available and more housing available to the folks you are speaking about, sir. Senator LEHMAN. If it was raised to $8,600, would your organization, or the constituent bodies within your organization, be interested in these loans? Mr. MURPHY. Yes; we would be interested in it, even as it is now, We don't believe in that section of the bill, but we will make loans, sir. We will make the loans, even though we don't support that provision in the bill, and at $8,600, of course, there will be more mortgages made because there will be more homes available at that figure, especially in the north. Senator LEHMAN. Do you think a ceiling of $8,600 would make the operation of that section a practicable matter? Do you think that Mr. MURPHY. I believe so, sir; yes. It would be much more effective. $7,000 would have to be pretty much down south where you don't have heating and full foundations, and so forth. Up north, we would need more money to make that section of the bill effective. Senator LEHMAN. Would you limit this provision exclusively to those who have been dispossessed from inferior or slum areas? Mr. MURPHY. Yes; we feel it should be limited to that group, because that is the sense of the bill. In a sense, it is an endeavor to get some semblance of homeownership, instead of public housing. Senator LEHMAN. You referred to this Baltimore plan, and we have had witnesses with regard to it appear before the committee. I forget the name of the man who is really responsible for the plan. Mr. MURPHY. James Rouse, sir. Senator LEHMAN. I think so; yes. As I recall the testimony, he made it very clear that he didn't think this would be a curative situation, but would be a palliative, a supplementary or complementary situation that would help the general situation. He did not take the position that we could do without public housing. Mr. MURPHY. I don't know his testimony, sir. We cited it simply as an example of what the rural fathers, as we call them, or the city fathers, could do toward lessening the need for public housing by endorsing their own laws with regard to safety factors, smoke nuisance, and health. Senator LEHMAN. Thank you very much. Senator ROBERTSON. Senator Sparkman Senator SPARKMAN. Mr. Murphy, I enjoyed the part of the statement I did hear, and I have read over the balance of it. I think it is a very clear statement. There are just a few questions I would like to ask for my own information. When you refer to the fact that your member associations made. loans last year that equaled 38 percent of all the home loans made in the country, do you mean members of your association, or is that all savings and loan associations? Mr. MURPHY. All savings and loan. Senator LEHMAN. In both leagues? Mr. MURPHY. Yes, sir. It is the entire group of savings and loan associations in the country, roughly 6,000, including cooperative banks in New England and cooperative associations down in New Orleans. Senator LEHMAN. I am glad you put that statement in. Someone earlier in the hearings made some reference to that. I commented that I was glad that statement was put in, because I don't believe that the people of the country generally understand the extent to which the neighborhood savings and loan associations are carrying the home-financing load in this country and are discharging that responsibility. I am glad to have those figures here. Mr. MURPHY. Thank you, sir. We try to tend to our knitting at the grassroots. That is where we think the strength of America is and we try to do a job there. Senator SPARKMAN. I remember some years ago when a representative of the savings and loan people testified as to the amount of money they loaned out in GI loans and loans to veterans, and it was a tremendous amount. I know during the time that the veterans were having difficulty getting home financing, your member associations continued to make the loans fairly well. I get this from a statement in your paper. Do you utilize FHAinsured loans, at all? Mr. MURPHY. Yes. In the business at large, sir, in the Nation. Senator SPARKMAN. Yes. Mr. MURPHY. Yes, about 5 percent. Senator SPARKMAN. When I say "you," I mean your member associations. Mr. MURPHY. About 5 percent of our total lending is under FHA. Twenty percent is VA. Senator SPARKMAN. You don't use FHA very extensively, do you! Mr. MURPHY. No, sir. Senator SPARKMAN. How about the GI-loan program? Mr. MURPHY. We do 20 percent of our total fending in the GI-loan program. Senator SPARKMAN. I am talking about the GI-guaranteed loan. What part of the loans that you make to veterans are GI-guaranteed loans? I understand 20 percent of your total goes to veterans. I am trying to separate that. Of the amount that goes to veterans, how much of it do you just lend, yourself, and how much do you lend under the guaranteed loan program? Mr. MURPHY. I can't answer that accurately, sir. In my own little institution, I'd say 90 percent of the veterans take advantage of the GI-home-loan program, if that is some indication to you. Senator SPARKMAN. I just wanted to bring out that point. Mr. MURPHY. I don't want to be held to it, because no study has been made, but we could make such a study if it would help you. Senator SPARK MAN. No, I don't care about this. It is just the contrast I wanted to get. As far as the FHA is concerned, you use that to a smaller amount, but the guaranteed veterans loan program, you utilize that to a very great extent? Mr. MURPHY. We do, sir. We feel an obligation to the veteran and have tried to fulfill that through the years. Senator SPARKMAN. I wonder if you could give me some idea as to whether the percentage of the homes built through your method of financing are for persons of moderate incomes. Do you have a breakdown that you could put in the record? If not, I don't ask for it. Mr. MURPHY. We could file a supplementary statement, but I would say the vast majority, sir. Our average loan, again, is around $5,500. The total in our little institution, is $10 million. Mr. SLIPHER. The average loan we make is $7,000. Senator SPARKMAN. Throughout the United States? Mr. SLIPHER. Yes, sir. Senator SPARKMAN. You say this program is too liberal. This is the only point that occurs to me, and I'd like to have your comment on it. If this program is not enacted into law, do you believe that, under the program that we already have, we could expect to get an adequate supply of housing for people of moderate incomes? Mr. MURPHY. I would think so, Senator Sparkman. We did a very adequate job last year, and the year before that, and we will do it this year with no legislation along these lines. Senator SPARK MAN. Do you think the money situation this year is as good as it was last year? Mr. MURPHY. I think it is a little better, sir. Senator SPARKMAN. It is true, though, that a lot of houses built last year were really built on the momentum that had gained force before we had this change in the interest rate, and the issuance of the 314 Government bonds, the shakeup came at that time? Mr. MURPHY. No, we felt there was enough capital all the way through, sir. We never felt there would be a shortage and the momentum was carried through into January and February this year, sir. Senator SPARKMAN. Your flow is uniform throughout the year? Mr. MURPHY. Ours was in the savings and loan business. I think in all fairness, it was spotty in the country, at times. Our flow was steady through the year, sir. Senator SPARKMAN. Mr. Chairman, I believe that is all. Senator ROBERTSON. Are there any other questions? Senator SPARKMAN. May I ask one other question? I understand that later there will be a program looking toward a reorganization that may affect the savings and loan industry. That is not included in the present measure; is it? Mr. MURPHY. I understand it is not, sir. Senator SPARKMAN. I assume when that comes up, you will give the committee the benefit of your views on such a proposal. Mr. MURPHY. If the committee will allow us, we have views on it, sir. Senator LEHMAN. I just wanted to ask one other question: I gathered from your testimony, which I found very interesting, that in the last year or two, and today, insofar as the area in which you are located is concerned, New York, New Jersey Mr. MURPHY. North New Jersey, yes. Senator LEHMAN. There have been adequate funds available for mortgages on GI loans? Mr. MURPHY. Yes, sir. Senator LEHMAN. At the current rate of interest? Mr. MURPHY. Yes, sir. May I say this to you: In the State of New Jersey, we are proud of the fact that while we oppose direct Government lending in the GI field, that we have taken up the slack in New Jersey, and there hasn't been a single direct loan made in New Jersey because the Veterans' Administration, the Congressmen from our State, cleared with our State savings and loan organization and we took care of every loan, so there hasn't been a direct loan made, sir, so I would say the GI loan has been taken care of. Senator LEHMAN. I take it you or your association has made a study of conditions that exist generally throughout the United States. Do you believe that the same plentiful supply or adequate supply of mortgage money existed in smaller communities? The reports we have had is that while mortgage money was available in the larger urban centers, it was not available in many of the smaller areas, the less populated areas, States like Alabama, Mississippi, Georgia, and out West. Have you made any study of that? Mr. MURPHY. I think there were dislocations, sir, yes, but we still feel that if the State commercial bank organizations, the savings and loan associations, and in the New England area, the savings banks and insurance companies, were to put it on a volunteer basis and clear it as we do with just one organization in New Jersey-our own little State association-that we could take care of those dislocations, sir. But the dislocations do exist in some of the hinterland, yes. In my old State of North Dakota, I know that is true. Senator ROBERTSON. You say the reserves set up by FHA are far below the margin of safety which private investors feel necessary for their security. Are we dealing in big money, here? Mr. MURPHY. We feel we are when we get to $10 billion sir. Senator ROBERTSON. When we get to $10 billion, don't the VA loans already exceed $15 billion? Mr. MURPHY. Yes. I am citing 1952 figures, sir; I am sorry. Senator ROBERTSON. Don't the FHA loans already exceed $23 billion? Mr. MURPHY. Yes. Senator ROBERTSON. There is $38 billion. What is your estimate of the average increase in the price of housing as compared to 10 years ago? Mr. MURPHY. Well, that depends upon the area, sir, but certainly it is double and more in some parts of the country, sir. Senator ROBERTSON. Suppose in the next few years, whether you call it a rolling adjustment or depression or whatnot, the average price should drop 20 percent. What would happen, then, to FHA? Mr. MURPHY. I suppose we would have to include in that assumption how many homes they took back, sir, to determine the ultimate loss to them. Senator ROBERTSON. Well, if the price dropped 20 percent, which is considerably below the amount that the Government had in there, is it reasonable to assume that their losses would exceed the reserve that they have set up to meet those losses? Mr. MURPHY. Yes, if there were heavy repossessions, but it would be a question of whether the folks stopped making their payments and gave up the properties. The mere drop in the price of homes, sir, wouldn't necessarily indicate FHA would have a loss, unless I gave up my house or John Jones gave up his house. |