and Loan Association of Washington, D. C. The four group of loans are as follows:

From the above table it will be seen that the total monthly carrying charges on any of the loans illustrated per thousand dollars would, if applied to the average loan of $5,514 made by the reporting associations, to which I referred in my testimony before Mr. Multer came into the room, make a monthly payment of less than the $52.58 which I reported as the average monthly payment on the loans made by the reporting institutions to the middle-income families. I wonder, therefore, if Mr. Multer did not assume that my reference to the average cost of these houses was the amount of the loan.

However, it will also be seen that even if the largest monthly payment per $1,000, namely, $7.96 as shown in the above table, were applied to a $7,000 loan to cover the entire cost of a unit as described by Mr. Multer in his original question, the total monthly charge would be $55.72 or less than the $60 which he indicated was necessary.

The CHAIRMAN. We will now hear from Mr. Epter.

STATEMENT OF LAWRENCE A. EPTER, PRESIDENT, MORTGAGE BANKERS ASSOCIATION OF NEW YORK, INC.

Mr. EPTER. Mr. Chairman, my name is Lawrence A. Epter. I am president of the Mortgage Bankers Association of New York.

I would like to say that some of the statements that I will make do not appear in the printed copy of the proposed statement that you now have before you.

This association, which I have the honor of heading, has in its membership, savings bank, life-insurance companies, mortgage-loar

correspondents of savings and life companies, commercial banks, servicing agents for institutions and private lenders, including approved mortgagees, as set forth under the rules and regulations of the National Housing Act.

We wish to go on record as strongly opposing the provisions contained in H. R. 6618. We have, however, eight alternative proposals which should satisfactorily accomplish the same results but within the framework of the national housing law and the Servicemen's Readjustment Act, with minor amendments.

We also respectfully petition for the reinstatement of section 505a of the Servicemen's Readjustment Act of 1944, as amended.

Our reasons for opposing cooperative housing are based on fundamentals.

(1) Cooperative housing has been the child of prosperity and housing shortages but the orphans of depressions.

The record in New York, incidentally, shows that every apartment house built above the average-income class was totally wiped out during the depression. The only two that were not wiped out were two cooperatives in Brooklyn, which were built by people of Finnish extraction who have carried over the theory of cooperatives housing from their own homeland and made it successful.

(2) Cooperative housing has been sold in the good times, but have been lost by its purchasers when economic conditions reversed themselves and each cooperator was not able to hold up his end of the bargain and pay the maintenance costs.

I would like to point out here that there is a statement in the bill which makes provision for a leasehold. Under a leasehold there is no ownership. You would merely own the shelter and, regardless of whether that leasehold is 75 years or 99 years, and, without taking into acount the mortality tables, it will be impossible for the original purchaser or any member of his family, even if the liquidation occurs within 100 years, to ultimately truly own his own property, the reason being that there is still a leasehold of record and the title of the land will then revert back to the original lessor.

Mr. BUCHANAN. The equity is transferable, though, it is not?

Mr. EPTER. The equity only in the shelter. The lessor cannot do anything about it, or, at least, the lessee cannot until such time as the lessor agrees to sell at a fixed price, unless there are advance conditions set forth in the instrument in the first instance.

Mr. MULTER. What lease are you talking about, sir?

Mr. EPTER. I am talking about the provision in H. R. 6618 which gives the cooperatives the right to erect properties under a leasehold, or leasehold land, for a term of 99 years, with a renewal, or a straight term of 75 years. I say that that is not ownership.

Mr. MULTER. Can you refer to the page of the bill?

Mr. EPTER. Yes, I think I can. It is on page 30, line 8, under the heading of "Definitions":

"Mortgage" or "mortgage loan" shall mean a first mortgage on real estate, in fee simple, or on a leasehold (1) under a lease for not less than 99 years which is renewable or (2) under a lease having a period of not less than 75 years to run from the date the mortgage was executed.

That is a leasehold provision; that is not ownership.

Mr. MULTER. Well, are those leaseholds any different than the leaseholds which are referred to in large metropolitan areas as ground

leases, under which we have hundreds of large office buildings and apartment houses built?

Mr. EPTER. In cases of that nature, that is speculative investment, and in that case the speculator has a right to determine his risk.

We are talking here about legislation for housing for low- and middle-income group families. Those people are supposed to wind up with ownership. If they wind up with a leasehold they still do not own the land on which the shelter has been erected.

Mr. MULTER. Taking the experience of those ground leases of 75 years and 99 years in the metropolitan areas, where they put up big structures, as an experience on which to make a loan, having in mind that every lending institution in the country has found them good risks, for the period of the ground lease, why should we not consider them good risks for this purpose, so that we can provide shelter, in the one case, for 75 years and in the other case for 99 years?

Mr. EPTER. On two points, if you will give me the time to explain. Mr. MULTER. Certainly.

Mr. EPTER. First, all leases on large commercial properties or large residential properties, where they are on leasehold land, contain a provision that upon the termination date of that lease-whether that lease is terminated by actually running it to the maturity date or through foreclosure of the leasehold interest, or through a reversal, in one form or another-the provision in the agreement is that title to the structure itself reverts to the lessor; in order to circumvent a question of taxation there is a residual value established for the building, at the expiration of the 75 years or 99 years, and that residual value is a very infinitesimal value based on the original cost of the construction. So that the lessor, at that time, becomes actually the owner of the building and the land. Those are the provisions in a number of your large apartment units in New York.

Mr. MULTER. Are the leaseholds referred to on page 30 of this bill intended to be something other than the ground leases we are talking about now?

Mr. EPTER. Yes; because in this case we are proceeding on the theory of ownership. We are not proceeding on the theory of speculative operation.

Mr. MULTER. I do not think your conclusion follows.

The CHAIRMAN. I would suggest you let the witness complete his statement first and then interrogate him, Mr. Multer.

Mr. MULTER. Very well, Mr. Chairman.

Mr. EPTER. The allowance of 3 percent vacancy is entirely too low for even reasonable safety expectancy except in times of high prosperity. The allowance of 7 percent under title VI, section 608, is short of the safety of 10 percent usually used by lenders on mortgage loans of shorter duration. Depression periods have shown vacancies to be 20 to 40 percent-page 57, Middle Income Housing Hearings, Subcommittee of the Senate Committee on Banking and Currency-and therefore foreclosures would be encouraged by low allowance for contingency.

Foreclosures would be disastrous to the average uninformed buyer in such a venture and would destroy the equity created by the purchaser, through no fault of his own-and without any possibility of any salvage by reason of the blanket cooperative loan.

On that point we would like to bring out one situation. That is that the act provides for free-standing buildings as well as multiple dwellings. Now, we believe that the only basis under which any factor of safety can be developed, if this legislation is in any way enacted, would be to restrict the construction to free-standing buildings, whether it be row houses of one-family houses or detached or semidetached buildings, so that in the event of trouble, economic or otherwise, each individual owner could then purchase his own piece of property directly from the cooperative and he would not suffer loss of equity through a general, over-all foreclosure of the blanket lien.

(3) At no time may it be expected that the cooperative purchaser would live the 50 years from the time of purchase to see the liquidation of the debt and the full unencumbered fee ownership of this shelter unit, and nothing but debt would be passed on to his widow and orphans.

Our reason for making that statement is that the United States Census Bureau says that the average age in the United States is 29. If the average age in the United States is 29, and the first provision calls for a 50-year loan that would make 79 the earliest possible date at which liquidation of the loan debt could take place, and if for any reason there was refinancing, as provided for in the act, to extend the term to 60 years, the youngest possible individual would be 89; and if for any other reason it went beyond that, with three additional years as provided for, he would be up at 92 before he could actually acquire full title.

Proposed tax exemption on the bonds, notes, or debentures of the proposed cooperative corporation at a time when the United States. Government is in need of additional taxable revenue is something hard to understand.

It places a further burden not only on the Federal Government but on the States and municipalities by precluding these other divisions of government from collecting any taxes on any activity of the corporation, including nonhousing. And there is a provision in the bill which gives the corporation the right to create additional facilities of a nonhousing nature for various activities of the area.

Since the interest rates of the Government are controlled and managed by the Federal Reserve and the Secretary of the Treasury, the pegging of interest at one-half of 1 percent above the average going rate is not only not applicable but it does not reflect the underlying risk and nonliquidity of real estate or mortgages.

Mortgages constitute the chief source of income of savings banks, savings and loan associations, and life-insurance companies; and mortgage interest earnings are the lifeblood and form a very substantial portion of the income of all institutions and commercial banks engaged in investment not only for their own portfolios but those making construction loans for other permanent lenders.

The entrance of the Government into this direct lending field under the guise of free marketing of unconditionally guaranteed bonds would be a catastrophe, since it would be a direct attack on the securities of the savings of depositors and policyholders of these institutions and to the individuals through a reduction of the earning power or the interest paid to individuals through this medium of investment income. It will discourage thrift by the reduction of interest divi

dends to the average citizens and taxpayers of this country who have been educated to the advantages of thrift since this country's inception. Government bonds make up the most substantial portion of interestearning investments of all these institutions, most of which are mutually owned. With United States Government bonds bearing a gross interest rate of 22 if purchased at par, it becomes necessary to invest funds in an amount in excess of 212 percent in order to be able to pay the depositors or policyholders a rate of 2 to 3 percent in the respective fields mentioned herein.

Mortgage interest by average in the State of New York, as disclosed by the official reports of the superintendent of banks for the year ending June 30, 1949-the most recently published and tabulated periodwas 4.19 percent. This included mortgages which had been on the books for many years bearing interest as high as 6 percent. The full impact of the FHA and GI financing programs subsequent to the cessation of hostilities in 1945 had not been fully felt, nor had the effect of the FHA economy housing program sponsored 3 months earlier been made known.

After calculating the holdings of savings banks, in which instance more than two-thirds of the total portfolio portion was in United States Government bonds, as disclosed on page 12 of the banking department report, the average earning was 2.94 percent gross for all forms of investments, including mortgages, before the deduction of a cost factor equal to sixty-nine one-hundredths of 1 percent for operating overhead, thereby reducing the net income figure to 2.25 percent on all investments. This record also discloses that at the time the average interest paid on time deposits was equal to 1.65 percent.

In the year 1949-that is, the full period-savings banks increased the interest dividend to their depositors to a point equal to 1.85 percent State-wide; and at the same time the interest rate obtainable on mortgage investments, including those loans in the portfolios of the institutions, dropped from 4.19 o 3.96 percent. It will readily be seen that with the increased cost of operation, which has not as yet been computed, but with the higher dividend rate paid to the depositors and the lower yield in interest through the satisfaction of old high-incomebearing mortgages and the reinvestment of these funds in lower FHA, VA, and conventional mortgages, the institutions in the savings-banks class did not earn 2.94 percent by December 31, 1949, as they did on June 30, 1949, but will earn closer to 2.86 percent on the over-all investment picture.

For the calendar year 1947, which is the last official report turned out by the New York State Department of Insurance, the life-insurance companies of this State carried total investments in mortgages equal to 11.7 percent and bonds, including United States Government bonds, in an amount equal to 78 percent. Those insurance companies not resident in the State of New York but permitted to do business in this State, including alien insurance corporations, carried 14.6 percent of their assets in mortgages and a total of 74.3 percent in all types of bonds.

The country-wide earnings of every life-insurance company in the United States of every category for the year 1948, as disclosed in the sixty-first annual edition, entitled "Compendium of Official Life Insurance Reports," showed a gross interest income on every form of