Finance Administration have too much at stake in their administrative, legislative, and budgetary programs to be allowed to gather their own facts. Housing economic studies can too easily be "slanted" to serve the aims of administrators. Economic research in housing for legislative purposes is a prime objective in this bill; yet it is placed by this bill in the hands of the agency to benefit from congressional action based on the research. Presumably the research title would provide the standards by which the Housing and Home Finance Administration's administrator would determine whether private industry is serving the housing need; what the need is; what a decent home is; what a low income is; and all the other vague concepts with which this bill is replete. Thus, the standards in the hands of the operating agency become the tools with which sanction could be given for any ideological objectives the bureaucrats in power at any particular time might desire to carry out. Who could dispute them? The "official facts" would be in their control. Congress or private industry would be helpless to deny any assertions the Housing and Home Finance Administration might make. Mr. TALLE (acting chairman). Mr. Brock, will you proceed? Mr. TALLE. You may proceed, Mr. Coogan. Mr. NICHOLSON. May I ask a question first, Mr. Talle? Mr. NICHOLSON. In the State that I represent, we cannot give any tax exemptions. Everybody has to pay a tax. Under this Baltimore plan, under which people are freed for 10 years or so from taxation, I am afraid it could not work in my State. So in our State we would have to pay these things because we do not have tax-exempt property except in the case of religious and educational properties. Mr. COOGAN. I think you will find that your slums are usually created by the people who own the buildings. Under your health and sanitation laws, these same owners could be compelled to keep their buildings in good physical shape. Mr. NICHOLSON. Yes, but under the Baltimore plan, as I understand it Mr. COOGAN. There is no tax abatement under the Baltimore plan as I understand it. Mr. NICHOLSON. But they have the right to go into your home and say that you will meet certain requirements, do they not? Mr. COOGAN. Yes; they said your home was condemned if you did not repair it and place it in good physical condition. Mr. NICHOLSON. Has it been taken to the Supreme Court? Mr. COOGAN. I believe so. In Maryland. Mr. NICHOLSON. The Supreme Court has decided that you can go into my house and tell me how to do certain things with it? Mr. COOGAN. I think pretty nearly all communities have laws regarding health and sanitation which are enforcable and the right to condemn the property as living quarters unless the regulations are complied with. Mr. TALLE. You may proceed with your statement, Mr. Coogan. STATEMENT OF THOMAS COOGAN, SECRETARY, NATIONAL ASSOCIATION OF HOME BUILDERS Mr. COOGAN. My name is Thomas Coogan. I am an active Miami, Fla., home builder and secretary of the National Association of Home Builders. We look with great apprehensions on the proposals contained in S. 866 to combine under the HHFA Administrator the functions of FHA, the Home Loan Bank Board and the secondary market. This would give one man an unprecedented and dangerous control over all established mortgage insurance functions, and the power to contract or expand home building volume as his ideologies or as political considerations might determine. Our great home-building industry, and all the industries dependent on it, would be subservient to this one man's decisions. We submit that such an administrative dictatorship is repugnant to our form of government and its proper relationship in our system of private business. These objections are even more pointedly emphasized by the other powers granted to the same man in the research, slum-clearance, and public-housing sections of the bill. In developing a housing program, mortgage money is as essential as are the lumber, brick, and nails. Actually, it is more important as it is the first requisite in planning a housing project. At the end of the war and the beginning of the emergency housing program, mortgage money was extremely plentiful. For a period of nearly 5 years there had been no new mortgages created and the investment institutions had been accumulating large funds they were unable to invest. The desire for mortgages was so great that premiums were being paid to mortgagees and builders to secure their mortgage business. With the release of Government controls on building on June 30, 1947, the building industry really hit its stride and turned out a record number of new housing units. Increased costs meant increased mortgages and by October of 1947 the investment market was nearly saturated. No one had anticipated such a volume of construction. Along with housing-cities, States, and counties were issuing bonds to build new schools, replace worn-out roads, make utility extensions, in addition to the many veterans' bonus bond issues. Then in November it became evident that the authorization of mortgages under title VI would be exhausted prior to the expiration of the act. This caused all builders throughout the country who were planning housing projects to file their applications immediately in order to protect their investment in land and materials. As a result, $450,000,000 worth of applications were filed in 9 days. This large volume of mortgages offered to the market at one time on top of the previous steady load staggered the mortgage market. Simultaneous with this burden, the Treasury Department withdrew support of Treasury bonds allowing them to drop several points. This action completely unsettled the investment market. Many mortgage commitments were canceled or withdrawn and many of the larger investment institutions have since refused to buy 4-percent mortgages. Fortunately for the builders and the housing program, Federal National Mortgage Association stepped back into the picture and offered to buy all Federal Housing Administration insured mortgages at par. This act has made it possible for operations to continue and gradually some of the insurance companies are again buying these mortgages. Title VI financing provided effective firm commitments for the first time with the result that builders were enabled to produce a totally unprecedented number of units at one time through this form of production credit. This was the key to the production by private enterprise of hundreds of thousands of housing units during the war period. It has also been an extremely valuable production device in moving rapidly into an unprecedentedly high volume of housing for veterans with the end of the war and the elimination of Government controls. The firm commitment made possible the purchase of large tracts of land, the installation of streets and sewers where necessary. It made it possible for us to plan subdivisions from 100 to 5,000 houses. Housing in such projects made it possible to use high-speed production methods and the multiple savings possible in large, continuous operation. It is essential that title VI be extended for at least a year. This act alone has produced a record number of rental units and if we are to have this volume continue, it must be under this type of financing. The Wolcott bill, H. R. 5854, provides that 50 percent of the authorization is for rental housing. This part of the act requires great preparation on the part of the builder and considerable time elapses between the initiation of a project and the actual start of construction. By cooperation between the Federal Housing Administration and the Home Builders Association, groups were formed to explain the working of the 608 part of title VI. The effect of this program was just being felt when the authorization ran out. An extension of this will produce the full quota of rental housing and obviate the necessity of the Government spending money on public housing. Without 608 of title VI there will be almost complete stoppage in the rental-housing program. The firm commitment has been the first tool provided the industry whereby we could secure bank credit for construction money. This is the money used to finance the construction of the houses. The actual Federal Housing Administration mortgage is not available until the house has been completed. In order to secure this credit from the commercial banks, it is necessary that we have a firm commitment from some investment institution to buy the mortgage when insured. When the market for mortgages dried up last winter, the commitinents were unavailable and the builders of the country were without construction funds. Thousands of telegrams poured into Washington from builders who had projects ready to start and who could not secure construction money. Federal National Mortgage Association stepped in and by paying their fee, commitments were secured and construction proceeded. Howeɣer, we were then faced with a measure in Congress terminating Federal National Mortgage Association. Thanks to the action of this committee, this agency was continued, but during the uncertainty many banks refused to advance money on the Federal National Mortgage Association commitments. We cite this to show the many uncertainties that have faced the builders of the country during the past 6 months. It is most urgent that we have a period of security for a definite period of time so that the many long range housing projects now being planned can go ahead to completion. The investment involved and the need for the housing warrant a period of security. In extending Federal National Mortgage Association no action was taken to include the Veterans' Administration loans in the mortgages to be purchased. We feel that it is essential to the housing program that these loans be provided with a secondary market. It is also essential that the 505-A loan be eligible to Federal National Mortgage Association. In order to be of any value, it should be sold and serviced together with the Federal Housing Administration mortgage on the same property. It is impossible for a bank or investment institution to service a 20-year 4-percent loan for one or two thousand dollars. When serviced with the first mortgage and treated as a package loan, it becomes a worth-while item. Much has been said of the need for lower cost smaller houses and the use of title I, class 3, for financing this program. Before the war considerable progress had been made particularly in the South and West in the use of title I, class 3, because Reconstruction Finance Corporation mortgage company would buy them at that time. This type of financing whereby the Federal Housing Administration insures only 10 percent of the cumulative mortgage risk held by any institution has proven unworkable in most areas. Few institutions will buy these mortgages for the full term. We believe that because of present costs, the limit of $3,000 is impractical and the suggested $4,500 should be raised to $5,000 maximum mortgage. At the present time the builders of the country are studying and planning what is known as the economy or low-cost housing. It is our opinion that these projects are going to make available a great number of houses at or under the $6,000 level. If title I, class 3, is made workable, these projects will go ahead immediately and make housing available to this vast group who have been unable to purchase at present prices. As title II again becomes the primary Federal Housing Administration vehicle for home finance operations, it should be borne in mind that, in addition to raising the maximum permissible mortgage limits to accord with present-day costs, some better form of production credit must be provided than is permissible under that title. The existing act permits, as you know, 90 percent and combination 90 to 80 percent financing for owner occupants but only up to 80 percent for builders. By its regulations and procedures Federal Housing Administration under title II will not issue firm commitments to builders even up to the statutory limit. Its rules permit 80 percent on the first $6,000 and 60 percent on the balance up to $15,000, thus confining such financing to approximately 70 percent. This leaves a heavy construction financing problem upon builders and automatically tends to inhibit the volume of lower cost operations. We realize that as construction gradually overcomes the shortage of housing, sound financing will require some diminution of the 90 percent firm commitment that has been available to builders under title VI. We submit, however, that a drop to 70 percent firm commitment under Federal Housing Administration rules, and even to an 80 percent commitment which would be available if Federal Housing Administration operated up to the statutory limits, is too drastic a curtailment of credit. We recommend, therefore, that consideration be given to amending title II to permit to builders a firm commitment that will be 5 percent lower in respect to the appraised value than the commitment available to an owner occupant. In other words, in those cases where a 90-percent mortgage would be available to an owner occupant under title II, the builder should have an 85-percent firm commitment; where a combination 90- to 80-percent mortgage is available to an owner occupant, averaging let us say, 83 percent of the appraised value the builder should have a 78 percent firm commitment. This will require builders to back their judgment with a substantial amount of cash investment but will not be so burdensome as to preclude volume operations. To those who suggest that the amount involved is small, it must be remembered that multiplied by 50, 100, or 500 units it becomes very large. Mr. TALLE. The committee is glad to have heard your statements, Mr. Brock, Mr. Lockwood, and Mr. Coogan. Do the members desire to ask some questions? Mr. HAYS. Mr. Coogan, I believe you said something about farm housing. Mr. COOGAN. No; that was Mr. Lockwood's department. Mr. HAYS. I am sorry. He has gone? Mr. COOGAN. Yes; he has. Mr. HAYS. Thank you. That is all, Mr. Chairman. Mr. TALLE. Congressman Gwinn. STATEMENT OF HON. RALPH W. GWINN, A REPRESENTATIVE IN CONGRESS FROM THE TWENTY-SEVENTH DISTRICT OF NEW YORK Mr. GWINN. Mr. Chairman, I have quite an extended statement and I hesitate to take any more of your time than is necessary, so I will just give an outline and then leave the statement with you. This is the last day of the hearings, I believe? Mr. TALLE. That is right. You may proceed. Mr. GWINN. Mr. Chairman and members of the committee, some 3 or 4 years ago I started to make a study of public housing because I felt that public housing was clearly the best designed high road that could be chosen-that has been chosen in fact, in Europe-to bring about socialization of our whole economy, and it is from that angle that I have studied both the American scene and the European scene, and have given the committee the benefit of that in a written statement which I will file with the committee. In brief outline, the study shows this: First, that there is no source of housing or food that is adequate to the people, except in a free society. Only the free societies do build houses and find food approaching adequacy. Slums are never cleared by public housing, but are always increased, wherever tried. That is true in every country in Europe, and it is true in our own country to the extent that we have gone. The only period that we have, covered by public housing, as contrasted with private housing, as a slum clearance device, is in the period from 1920 to 1930, when we had the most free building of houses we have ever had in our history. The studies by the Chil |