The CHAIRMAN. I don't see that any good is going to come of it. You can ask him a question if you insist.

Mr. THOMPSON. Does this suggest that perhaps some of the things I have said are accurate, that private industry will supply the money for private housing?

Mr. MULTER. It suggests that much of your argument, like Mr. Lockwood's yesterday, is of no value to us. You tell us you can't make 50- and 60-year mortgages, but here is a lending organization going to own that beyond 50 and 60 years. Do you know what rent they are charging there?

Mr. THOMPSON. The fact that you build a building does not mean you are going to own it for 50 or 60 years. In my company, we buy them one year and sometimes sell them the next year.

Mr. MULTER. They wouldn't be investing their policyholders' money into this building unless it would be a good investment, and the average rent is for the high-income groups, not for the low. A three and a half room unit is $133. Is that the middle-income group? That company can't afford to make the kind of mortgages we want to provide for in this bill but it can own a building of the same type as the cooperative building we are talking about. Of course, a mortgage will not produce the profit they will get from a rent roll based on $133 a month for three and one-half rooms.

Mr. THOMPSON. If the mortgage loan is to be made by Equitable Life or if Equitable is going to invest in it, of course, it is a mutual insurance company, and, therefore, it is the peoples' money that is going into it.

Mr. O'HARA. May I put in the record that my attention has just been called to the fact that, on page 4 of Mr. Thompson's supplemental statement, Chicago is given in a list of six cities, where houses are now being produced to sell for $6,500 and under. That statement speaks for itself.

Mr. SNYDER. Mr. O'Hara and Mr. Chairman, may I answer that question?

Mr. O'HARA. I didn't ask a question. I am merely calling attention in the record to your statement that Chicago is one of the six large cities in the United States where private industry is now building and selling houses for $6,500 and under. It would seem to furnish a gage of accuracy.

Mr. SNYDER. The statement you are referring to is not in the record. Yesterday we did not have time to complete that statement. The one in the record has percentagewise for every city the total number of units that are for each of those cities.

Mr. TALLE. Mr. Chairman.

The CHAIRMAN. Mr. Talle.

Mr. TALLE. I understand, Mr. Thompson, that you represent the Metropolitan Life Insurance Co. with reference to mortgage lending. Mr. THOMPSON. Yes, Mr. Talle, in northern New Jersey.

Mr. BUCHANAN. But you are not representing the Metropolitan Life Insurance Co. now?

Mr. THOMPSON. No, sir. I said at the inception that I am appearing for the National Association of Real Estate Boards. The Metropolitan is capable of speaking for itself.

Mr. MULTER. Mr. Thompson is here on behalf of the real estate boards, isn't that so?

Mr. THOMPSON. Yes.

Mr. TALLE. Now that you have been properly identified, Mr. Thompson, may I ask a question: I am grateful for the help I got in identifying you. Is it true that life-insurance companies in straight life insurance consider a man dead when he is 96?

Mr. THOMPSON. No, sir.

Mr. TALLE. Is it not?

Mr. THOMPSON. I may not have heard the question. As I understood it, you asked if a life-insurance company considers a man dead if he is alive.

Mr. TALLE. NO. It reminds me of Chicago, where there are two kinds of people—the quick and the dead. If you are not quick you are dead.

Mr. O'HARA. Thanks for the compliment.

Mr. TALLE. This is my question, Mr. Thompson: If a man takes out an insurance policy and it is straight life insurance and the policyholder lives to the advanced age of 96, do not the premiums in the ninety-sixth year cease?

Mr. THOMPSON. That is correct, according to the contract, they

cease.

Mr. TALLE. If the principle in the bill is good, that is extending the amortization period, why not make it 96 years instead of 60? Mr. THOMPSON. Why not?

Mr. TALLE. Then a man will not pay interest. . Actually, he will be paying a lifetime rent, is that right?

Mr. THOMPSON. Yes.

Mr. TALLE. As you extend the amortization period, the house costs more, does it not, the total cost?

Mr. THOMPSON. If you mean the continuing interest chargeMr. TALLE. That is right.

Mr. THOMPSON. Yes, all right.

Mr. TALLE. Because the total interest you will pay will be so much greater?

Mr. THOMPSON. Yes.

Mr. TALLE. Actually, it costs more. Let us say that a man buys a house at the age of 21 and it has an amortization period of 60 years. He could not become an owner in his own right until he became 81, could he?

Mr. THOMPSON. No, sir.

Mr. TALLE. I wonder if the fellow wouldn't think that he was just renting the place.

Mr. THOMPSON. He would, of course, and many do. And you know, I had an experience that I think might be interesting to this committee, an actual experience. A veteran came in to see me. Inasmuch

as there was some, perhaps, unwarranted publicity about my appearance before the Senate Banking and Finance Committee for the National Association of Real Estate Boards, he came into my office and asked me to tell him briefly as to the provisions of this bill.

I told him that, from what I understood, the group would get together, get 100-percent financing for a period from 50 to 60 years and possibly a 3-year grace period, at an interest rate which Mr. Foley said would be 3 percent or less.

That is all he wanted to know. He bought a house, and the mortgagee was insured to some extent by the veterans' association. He

bought it 2 years ago. He is just paying rent monthly he feels, and he is going to get into a cooperative and get the benefit of the Government's paying some of his costs of living.

I think that that is a very significant statement. It is an actual case. In other words, off with the old and on with the new. Let the Government pay part of the living costs, which this man was willing to pay before, but now is going to have his hand in the bag. I think it is a most serious thing.

Mr. TALLE. I don't want to be misunderstood, because I realize that amortizing the payment on a dwelling which, of course, is a sizable investment to most people-certainly it is to me-is a good thing, because a person has an opportunity to consider his income and then set up a budget that will make proper allowance for a monthly payment on a house.

The unfortunate aspect of it is that we don't live forever, and I think that we should figure in our amortization plans the possibility-well, we should at least figure that we ought to pay for the house within a reasonable period, so that we become owners and we are not just somebody who goes to the bank or some other finance house, pays the sum of money that to me looks like rent rather than the interest and payment on the investment.

Mr. THOMPSON. You know, Mr. Talle, in the mortgage industry it is considered practical, in certain cases of commercial property loans, to require a larger amortization payment during, we will say, the first 5 years of the loan in the reasonably predictable future, based on current leases, so that the loan is amortized more rapidly in the first 5 years, we will say, than in the next 5 or possibly 10. That would not be a bad theory to apply to the individual buying a home, to reduce the mortgage more rapidly during, we will say, the higher-income years and to reduce it at a lower rate during the declining-income

years.

Mr. DOLLINGER. Isn't it true that some mortgage companies refuse to permit free-mortgage payments because they want to carry the mortgage?

Mr. THOMPSON. That is one of the competitive features that we all have to contend with today. We now, in order to do a mortgage business of any volume, have to virtually give the mortgagor the prepayment privilege he wants. If we don't do it, the X or Y or Z Mortgage Co. or Savings Loan will do it.

Mr. MULTER. You would rather keep the mortgage running and unpaid than have it paid off?

Mr. THOMPSON. The privilege of prepayment runs to the mortgagor. Mr. MULTER. But the mortgagee does not like that.

Mr. THOMPSON. But has to under competitive prices.

Mr. DOLLINGER. That is because the mortgagor wants to pay his obligation and the mortgagee wants to continue it.

Mr. THOMPSON. There is nothing illegal-is there?-about making the mortgage loans or requiring interest payments on them.

Mr. DOLLINGER. Definitely not.

Mr. THOMPSON. They have been made since 1776.

Mr. COLE. Mr. Thompson, I am very much interested in the pay check the middle-income group receives and what it buys. What, in your opinion, does a lower rate of interest, forced by Government competition with private interests or private enterprise, do to the

pay check that the middle-income group receives? In other words, what effect is it upon the spiral of inflation or vice versa?

Mr. THOMPSON. Of course, if the Government, which, in effect, is now controlling interest rates, offers direct mortgage loans at from 3 percent or less, in my opinion, it is stimulating inflation in the sense that it will expand our already enormous development of housing of all types and is contributory to our current inflated economy.

Mr. COLE. In other words, the middle-income group may find itself able to buy a house at $45 a month, but find that the $45 that they make will take them longer hours to earn the $45. Is that not true?

Mr. THOMPSON. And they may also find that if inflation is further fanned by, we will say, the enactment of this legislation offering moneys at less than accepted sound interest rates, the $45 will not be enough to pay their monthly charges. They will have to spend too much for other commodities.

The CHAIRMAN. Is there any device by which private enterprise could be persuaded to loan at lower interest rates than they are loaning now, except by Government stimulation as provided in this bill? Mr. THOMPSON. Yes, Mr. Chairman.

The CHAIRMAN. You seek the highest interest rate that you can find-don't you—of a good security, and you would forego the guaranteed privilege to get a higher interest rate; isn't that true? Mr. THOMPSON. Yes, sir.

The CHAIRMAN. You don't seek those guaranteed loans at 4 percent if you can get a 5- or 6-percent loan; do you?

Mr. THOMPSON. We can't get them, of course, under present competition.

The CHAIRMAN. I mean, you would rather have 1 percent additional, uninsured, than an insured loan at any time?

Mr. THOMPSON. Yes, sir.

The CHAIRMAN. You can talk socialism or anything else. That wouldn't worry me. Last year, the issue was socialism, but those things don't scare me. I think we ought to meet these things on their merits.

Conceding there is a reason for a lower interest rate, is there any way you can obtain a lower interest rate except by a Government guaranty such as is provided in this bill?

Mr. THOMPSON. Mr. Chairman, I have always held to the basic belief that interest rates should be and were, until the Government started regulating interest rates, regulated by the supply and demand for money. If there is a lot of money seeking investments, interest rates decline. If there is little money and it is greatly in demand, interest rates rise.

Now, in the last 10 years, the only cost of the construction of any real estate that declined, and declined about one-third, was the cost of mortgage-money interest. Interest rates were, generally speaking, 6 percent. Generally speaking, they are now 4 percent. The CHAIRMAN. Why? FHA loans; isn't that true?

Mr. THOMPSON. Not necessarily. There is almost boundless source and supply of the mortgage of money now seeking investment in mortgages.

The CHAIRMAN. If there were no FHA-guaranteed loans, don't you think the interest rate now would be 6 percent?

Mr. THOMPSON. No; I do not.

The CHAIRMAN. Why not?

Mr. THOMPSON. Because, again, the mere fact that there are FHA loans and FHA legislation doesn't add to or detract from the supply of money.

The CHAIRMAN. Isn't your statement that if you reduce the interest rate to 3 percent you are going to bring down all the interest rates to 3 percent? Now, if the FHA provided for a loan of 4 percent, why didn't that have the tendency to bring down all interest rates to 4 percent? That is your very argument here?

Mr. THOMPSON. I don't think it is, Mr. Chairman. You know, conventional loans were made long before the FHA or the VA programs were inaugurated, and interest rates prior to the insurance of FHA loans and the partial guaranty of VA loans rose and fell, depending upon the supply and demand for money.

That is precisely what would be happening today, but there is an artificial rate fixed by the Veterans' Administration on the amount of interest that may be charged for veterans' partially guaranteed loans. The CHAIRMAN. Doesn't that have the effect of reducing all interest rates?

Mr. THOMPSON. It has done that.

The CHAIRMAN. It has done it?

Mr. THOMPSON. And, if we would enact this legislation, it is likely that interest rates will further decline, because the Government will not only be competing with the people, I am going to say now, for their money, but will be competing with itself. On the one hand, it is going to offer 3-percent mortage moneys. On the other hand, it is offering, through VA, 4 percent, only where VA guarantees it. On the third hand, it is offering FHA insurance to mortgagees who may charge interest from 4 to 412 percent.

The CHAIRMAN. I am not attempting to indulge in a philosophical discourse. I want to know the practical effect of reducing the interest rates to 3 percent, which you said would have the tendency to reduce interest rates generally, and the FHA mortgage at 4 percent has had a tendency, I think, to reduce the interest rates generally; and I think, if it hadn't been for that, the interest rate probably would be 6 percent.

Mr. THOMPSON. I can't agree with that, but I will agree with you that the Government fixing of interest rates has artificially brought down interest rates on conventional, uninsured mortgages.

Mr. WOLCOTT. Perhaps more important than that is the open-market operations of the Federal Reserve, debt management on the part of the Treasury, and the Federal Reserve requirements with respect to currency issues. There is no question at all but what through those sources the Federal Government sets the pattern by which interest rates are regulated. The main thing is the volume of credit. Of course, the influence of constant credit in that respect may become inflationary.

The CHAIRMAN. That is all. Are there any further questions?
Mr. BUCHANAN. I have just two questions here.

The CHAIRMAN. Mr. Buchanan.

Mr. BUCHANAN. You mentioned, through the latter pages of your statement, "direct loans" in the bill. I ask you, aside from "direct