The corporation could make loans, which would be insured by the Federal Housing Administration, just like other loans are. A rate of interest would have to be established by that corporation on the loans to the local housing cooperatives which would be sufficient to cover these things: First, the national mortgage corporation's operating expenses, including its proper share of the Housing and Home Finance Agency's expense.

Second, a premium or reserve, or whatever you might want to call it, sufficient to take care of the risk involved in lending of this kind.

Now, the FHA has established a premium of one-half of 1 percent for its mutual-insurance fund. We have various kinds of figures as to what has been necessary in the past to cover loss experienced in mortgage lending. Prof. John Lintner, of Harvard Business School, made an exhaustive and illuminating study recently of the mortgage experience and other experience of savings banks and he came up with the fact that if the most favorable period in our history-I think the period from 1906—were used as the basis for the study of how much would be required to be set aside each year by mortgage-lending institutions to provide an adequate reserve to cover the losses which would be realized out of their lending operations it would take sixtenths of 1 percent a year, and if less favorable periods were used the amount required would have gone very much higher than that.

I make a contrast between this amount which has been required by experience, the amount that is required by the Federal Housing Administration, and the one-eighth of 1 percent which is proposed in this

bill.

The third thing that should be computed in this interest computation is the rate at which it would be necessary to sell nonguaranteed debentures of the housing corporation, which would be secured by the insured loans made by the corporation and backed by the capital of the corporation.

Now, on that particular point we have, I think, a very good analogy in the Federal Home Loan Bank System.

As you know, the member institutions own the majority of the stock of those banks. The Government owns some of it. And under the bill which this committee approved the other day, and which the House passed, the Government-owned stock will very soon be retired.

The Federal home-loan banks are able to market their debentures, at the present time, at a rate of 1% percent, plus one-tenth of 1 percent for handling, on a 1-year term.

We would estimate that the Federal Home Loan Bank System would have to pay in the neighborhood of 2 percent, or perhaps slightly more than 2 percent, on 10-year debentures, based on the present situation.

My point is that with that kind of financing you need not require the guaranty by the Government of the debentures issued by this housing corporation, but it should be possible to sell debentures without that guaranty and at reasonable rates of interest based upon the experience of the Federal home-loan banks.

But in all this thing it strikes me that we have a situation here which reminds me of Russell Conwell's Acres of Diamonds. We know these savings and loan associations are making loans to the middle-income families in large volume and that other institutions are making similar loans.

We do not need to look to new things, it seems to me. We do not need to set up additional corporations. Our Government is full of them now; and every time you set up a new bureau or a new corporation it grows and grows, and it just seems to never stop expanding, and it is very hard to reduce the number. And, since we have so many facilities today, it just seems to us that there is no need to create additional facilities. As a matter of fact, you might very profitable explore the possibilities of using the Federal Home Loan Bank System itself as a means of providing additional credit, if you find such credit is needed, to take care of financing of cooperatives for the middleincome families.

I would now like to discuss H. R. 6742, with which we are in general accord.

While we have not been able to take a poll of our members' views on making FHA title I permanent, we did recently report the proposal to them and asked for their reactions, particularly if they were unfavorable. To date, we have received only favorable reactions to this proposal.

With regard to the elimination of section 608 and the substitution of new provisions in section 207 providing for 90-percent FHA loans on the first $7,000 value per family unit plus other extensions in the title II program, these amendments would also meet with our general approval. We urge, however, that section 608 be retained through March 1, 1950, because many mortgage-financing institutions and builders have made construction commitments to this date. Certainly it would be better to provide a mortgage-insurance program on this or similar basis instead of the cooperative-housing proposal in title III of H. R. 6618.

Again let me express my appreciation of this opportunity to submit the views of our member institutions on these pending bills.

The CHAIRMAN. Do you think it is ever justifiable to use Federal credit to assist the home owner?

Mr. KREUTZ. Yes; under some circumstances I think it is proper to use the Federal credit. We had an example of that in the dark days of the depression with the Home Owners Loan Corporation.

The CHAIRMAN. That was what I was thinking of. They did a wonderful job without costing the Government anything.

You do think the exercise of Federal credit would be justified now, if an emergency existed, I take it?

Mr. KREUTZ. Yes, as in the past, if an emergency truly exists. And I will say this, Mr. Chairman: There are some scattered areas in the country where there is still a shortage of funds for home financing. The CHAIRMAN. You say that by reason of Federal credit the interest rates were reduced one-fourth. What would that amount to in a loan with a maturity of 30 years?

Mr. KREUTZ. I believe there is a table submitted to the Senate Banking and Currency Committee, in the hearings over there, by Mr. Foley, showing the effect of various rates of interest on the over-all cost of home financing as represented by interest.

There was a comparison made, which appears on page 65 of the printed hearings of the Senate Banking and Currency Committeea comparison between the proposed cooperative or nonprofit housing

project and a 608 type of financing at various rates of interest from 3 percent to 4 percent.

For example, if a comparable interest rate were established under FHA 608 insurance, and for a similar length of time, as proposed in these cooperative-housing projects-namely, 3 percent and 50 years the total debt service would run, in the case of the former, $26.26, and in the case of the latter, $25.83.

Now, comparing that with the 4-percent rate, we have $30.86 for the FHA-insured projects at 4 percent.

Now, as to the difference in the dollar amount over a given period of time, I cannot give it to you offhand. I would be glad to supply it. The CHAIRMAN. That is the reduction in the rent that could be obtained, in other words. What would be the reduction in the total expenditure over the 50-year period?

Mr. KREUTZ. I assume you would eliminate the principal payments on the debt and consider only the cost elements of interest, taxes, upkeep, insurance, and so on.

The CHAIRMAN. Yes.

Mr. KREUTZ. Well, a reduction from 4 percent to 3 percent in interest would mean a reduction, I should guess, quickly, of about 15 percent in the net cost because of these other items, interest being but one of the elements.

The CHAIRMAN. You say that this would be discrimination against the veteran, whose loans are obtained at 4 percent. But, by reason of the circumstances that exist-the veteran was away from home for the duration of the war and had no opportunity to secure adequate housing when he came home-is the veteran not going to be benefited more by an increase in the supply of housing than any other class of people? Do you not think the need for housing for veterans is greater, as a class, than for any other segment of our population?

Mr. KREUTZ. Yes; I think that is probably true, Mr. Chairman, because the large percentage of the young men heads of families who are looking for housing accommodations may be assumed to have been in military service during or immediately following the war.

The CHAIRMAN. This is not for the benefit of a permanent class. The middle-income group is a shifting group; is it not?

Mr. KREUTZ. As are other groups; yes, sir.

The CHAIRMAN. And a man who is in the middle-income group today may be in a higher-income group tomorrow. When he gets there, I do not think he will want to live in the same housing in which he lived while he was in the middle-income group. So, will it not be a shifting class that will benefit by this?

Mr. KREUTZ. Yes; I think so, although I would say that, given a particular age group of our population, we would find that the middle-income group, and the lower-income group, would largely be represented by an age group below a certain point.

The CHAIRMAN. As I understand your argument, you feel there are adequate facilities now to create all the housing that is necessary for the people of the United States through the financial organizations that are now in existence?

Mr. KREUTZ. I think so, except for a few scattered areas where, because of peculiar local conditions, there is an inadequacy of funds.

Now, we have this rather peculiar situation existing: In the northeastern part of the United States, thrift institutions, by and large, have an excess of funds. In some other areas in the Southwest and West and South-there are some communities which do not have sufficient funds.

The Federal Home Loan Bank System is supposed to take care of that situation, and I think has been doing so to a great extent because of the facilities thus provided for local institutions to obtain funds from the Federal home-loan banks.

However, I know of a case in New York where one of the institutions there one of our savings and loan institutions-recently went all the way to Salt Lake City, where they purchased a million dollars worth of loans which had been made by a local institution out there to finance homes where apparently there is an inadequate supply of mortgage credit.

And I think there is more and more of that kind of thing that may be possible.

What we need is a better distribution of the available funds. I think some of the devices now existing have encouraged that distribution.

We have hopes, for example, that the Federal National Mortgage Association will not be permanent, by any means. We hope that they will be able, shortly, to sell a large volume of their loans to private investors and so obtain more funds to put out in those areas where funds are in short supply.

Mr. RAINS. Mr. Chairman, will you yield for a question?
The CHAIRMAN. I yield.

Mr. RAINS. That is the trouble with the private financing now. Take, for instance, a section of the country such as the South. The GI was totally unable to finance his loans down there in many instances-Georgia, Alabama-and for that reason I was one of the ardent supporters of a direct loan to veterans in order to give them at least some chance.

As I listened to your statement, I was trying to determine whether you were opposed to this because it was not necessary or because of the principles involved. Which is it, Mr. Kreutz?

Mr. KREUTZ. I think a little of both.

Mr. RAINS. As a matter of fact, there is not a great deal of difference in the principle from the principle of the home-loan bank, which the chairman discussed with you a moment ago and which we all admit did a good job.

Mr. KREUTZ. No. And if you would set this corporation up, if you find there is a need for it, on a comparable basis, I do not think you would find much objection to it from private business.

Mr. RAINS. If you were convinced that there is a need for it in the housing field-that housing is still short-would you still be opposed to it?

Mr. KREUTZ. I would be opposed to the principle of supplying the funds through the use of Government-guaranteed obligations. I think you can get the same funds by following the pattern which has already been established in the Federal Home Loan Bank System.

Mr. RAINS. Mr. Kreutz, that is what troubles me about the opposition. It always follows a pattern.

Now, your organization and many others oppose these very things which you are now saying are O. K. How are we to know but what in future years you will come up and say, "This is one of the things we should have had." Are you sure of your ground in this matter? Mr. KREUTZ. I do not believe, sir, that my organization did oppose some of these other things.

Mr. RAINS. They did oppose a great many of them, especially on the interest rates on loans. So, in my opinion, the thing we need to determine, first of all, is whether we need it now.

What figures do you have, other than those general figures, to show that we do not need the housing this bill contemplates?

Mr. KREUTZ. I think the figures I submitted, showing that 712 percent of the loans made by savings and loan associations, not to mention the other lending institutions, are made to the families with incomes which this bill apparently is designed to help-namely, incomes of less than $4,500-show that we are doing a real job in this field.

Mr. RAINS. Let me ask you another question.

You will remember that about 2 years ago, during the Eightieth Congress, there was some feeling here that the interest rates were going to be considerably raised. Do you remember how the private financial institutions in this country stayed completely out of the mortgage market, and you could not finance a home at all?

Mr. KREUTZ. All except our institutions, sir. The savings and loan associations were in there pitching all the time.

Mr. RAINS. Will the record show that?

Mr. KREUTZ. Yes, sir. In each of those years they made close to $3,000,000,000 of loans to the families of America. They did not hold back.

Mr. RAINS. Were those loans made outside the guarantee of the Veterans' Administration?

Mr. KREUTZ. Many were; yes, sir.

The CHAIRMAN. When you cease to make loans you go out of business, do you not?

Mr. KREUTZ. Yes, sir. That is one thing about the savings and loan associations: for the 119 years that they have been in existence they have been in there year after year making loans to finance families' purchases of homes.

Mr. RAINS. That is all.

Mr. BUCHANAN. How many local member institutions do you have in the National Savings and Loan?

Mr. KREUTZ. We have something over 600.

Mr. BUCHANAN. How is policy arrived at? You say that you canvassed the membership and that to date you have had very few reactions and those have been favorable.

Mr. KREUTZ. I beg your pardon. Are you referring to the amendments to the FHA provisions of the national housing bill? Mr. BUCHANAN. I am referring to H. R. 6618.

Mr. KREUTZ. Well, we must pursue this course, Mr. Buchanan: Under our Constitution we cannot take a position on legislation of