Section 2 of the National Housing Act in its present form authorizes the Commissioner to insure financial institutions, which the Commissioner finds to be qualified, against losses which they may sustain as a result of loans and advances of credit, and purchases of obligations representing loans and advances of credit, made by them "on and after July 1, 1939, and prior to July 1, 1950," for the purpose of financing alterations, repairs and improvements, and the building of new structures. Section 2 further provides that in no case shall the insurance granted by the Commissioner to any financial institution under this section on such loans made after July 1, 1939, exceed 10 percent of the total amount of such loans.

H. R. 6742 amends section 2 by striking out the words "July 1, 1939 and prior to" quoted above, so that the Commissioner is authorized to insure only loans made after July 1, 1950. This change would seem to deprive financial institutions of insurance on loans made prior to July 1, 1950, although such a result was presumably not intended by the drafters of the legislation. It is our recommendation that the bill be amended to provide that insurance reserves under title I up to July 1, 1950 be maintained, and be available to lending institutions, as provided in previous legislation.

We believe that the balance of H. R. 6742 is sound in that it will provide a stimulus to the rental-housing market which may be necessary when section 608 financing terminates on March 1, 1950. It is our opinion, however, that provision should be made in this bill for financing nonprofit cooperatives on a more liberal basis. Under the present provisions of section 207 (c) of the National Housing Act, veterans' nonprofit cooperatives enjoy the advantage of 95-percent FHA insured loans. The FHA in a recent official report on their experience under this section shows a surprising total of approximately $32,000,000 of mortgage-loan insurance to veterans' cooperatives approved, committed, or under actual processing since August 1948. We would favor an amendment to the bill making available FHA insurance of loans in an amount not in excess of 95 percent of value to nonprofit or nonpromotional cooperative housing corporations.

With respect to H. R. 6618, our association takes the following position:

H. R. 6618 is in many respects similar to title III of H. R. 5631, on which bill we appeared before this committee on August 3, 1949, in that it provides for 100-percent loans to cooperatives at an expected rate of interest of 3 percent. While the term of such loans has been reduced from the 60-year term contained in the original proposal to a 50-year term, refinancing of such obligations can be made on the basis of a 60-year maturity. This bill, however, eliminates the direct use of Treasury funds in making such 100-percent loans, and in place thereof it creates a body corporate to be known as the National Mortgage Corporation for Housing Cooperatives which will make and service loans. In addition to a $25,000,000 revolving fund provided to the Housing and Home Finance Administrator for preliminary advances of funds to assist in the formulation of proposed housing projects eligible for mortgage loans under the legislation, this Corporation will be supplied with $100,000,000 by Government subscription to preferred stock, and is authorized to obtain additional capital by issuing and selling in the investment market its obligations guaranteed by the United States in an aggregate amount of $300,000,000 which, with Presidential ap

proval, may be increased by additional amounts aggregating not more than $1,700,000,000.

It is contended that, by the offering of the obligations of the National Mortgage Corporation for Housing Cooperatives in the investment market, private capital funds will, in effect, be utilized in making the proposed mortgage loans to the cooperative associations.

Actually the investor in these obligations would purchase them on the basis of the United States Government guaranty and the Government would be making direct mortgage loans with such funds through the National Mortgage Corporation for Housing Cooperatives. From a practical standpoint we believe it is immaterial whether the funds used in making the loans are secured by means of direct Treasury borrowing or by what is, in effect, the endorsement by the Government of the obligations of the National Mortgage Corporation for Housing Cooperatives. Either action has the same basic impact upon the bond investment market supplying needed Government funds and on the mortgage-loan market through direct competitive Government lending. We oppose as unsound and unwarranted the principle of direct competitive lending for mortgages on residential property, and it is our further opinion that the objections to H. R. 6618 go far beyond this objection on the basis of principle.

While it is contended that under the scheme of this legislation the rate of interest would be controlled by the money market-the market at which these securities could be sold-actually such rate of interest would be controlled by the money market for Government-guaranteed securities. As Dr. Leonard S. Silk, assistant professor of economics, of Simmons College, stated before the Senate Banking and Currency Committee and I quote page 324, Hearings before Subcommittee of Banking and Currency Committee on Amendments to S. 2246, January 18, 1950:

The competitive financing to this kind of financing is not the Government financing of its Navy or its Army but is private financing of houses. This is an important distinction.

So, although it is responsive to the market forces that operate on Government-guaranteed securities, that is a different thing from saying it is responsive to market influences generally.

In general, in a period like the present, such subsidies may be undesirable for two reasons. I think the second is more valid than the first. First, because they may be only inflationary, and, second, because they may serve only to prop up a structure of inflated building costs and inefficient or wasteful building methods.

It seems to me that a middle-income housing program has two principal methods of providing more and better housing. One is by making the financing of housing easier for persons of moderate income. The second is by reducing the cost of building.

As we have pointed out in a previous statement before this committee on H. R. 5631, we sincerely believe that section 207 (c) of the National Housing Act in its present form makes adequate provision for the insurance of loans to cooperatives and that under the sions of such section soundly conceived cooperatives can being, financed by the FHA.

In addition to the $32,000,000 of mortgage loans to v eratives insured by the FHA under section 207 (c) p

tioned, nearly $50,000,000 of applications for loans to cooperatives, are being considered by the FHA. In the New York region the FHA has insured Bell Park Gardens and a Mount Vernon cooperative in the amount of approximately $8,822,000 and has a commitment to insure $5,000,000 on an additional unit of Bell Park Gardens.

The FHA has under consideration further mortgage loan insurance on cooperatives in the New York area in approximate amounts as follows: $16,500,000 for International Brotherhood of Electrical Workers' Local No. 3 housing cooperative and $2,500,000 for the Amalgamated Meat Cutters' housing cooperative. An application for insurance on a Stamford, Conn., cooperative is also under consideration by the FHA. It would seem to us that this record of accomplishment not only proves the ability of the FHA to administer a cooperative housing program but also justifies a continuation of such program with private financing.

Of the above-mentioned cooperatives, my own bank has financed one completed cooperative under FHA section 207 (c) for 800 veteran families in the amount of $7,222,000; and we are closing this week another loan for a cooperative based upon a section 207 (c) commitment for $5,000,000. We are also awaiting the issuance of an additional commitment for $3,000,000 for a third cooperative unit. This additional $8,000,000 will provide cooperative units for an additional 850 veteran families.

We feel that these are soundly conceived cooperative projects and that there has been a demonstrated ability, at least in New York State, to meet the veterans' middle-income market with privately financed projects such as those mentioned. We also believe that the maximum term of 40 years for mortgages on cooperatives on a 95-percent-ofvalue basis, as provided by the FHA under the existing provisions of section 207 (c), represents the utmost in liberal financing which should be available consistent with safety.

We further believe that H. R. 6618 will encourage a procession of promoters to submit to the director appointed by the Housing and Home Finance Administrator in charge of the National Mortgage Corporation for Housing Cooperatives propositions that look good on paper but which have no basic practicality.

Under the liberal terms of this legislation, such promotors would have no trouble in forming a group of cooperators with no investment required of them, and we might add that no investment would be required of the promoters. It must be recognized that normally, after completion of the project, the promoter's job is finished. If erroneous. estimates have been made of the cost of carrying the project, the promoter does not suffer, but the cooperative owner would be faced with a higher monthly carrying charge than originally represented.

That cooperative housing is a highly specialized and highly technical field was recognized in the statement in the President's budget message that "because of the limited American experience with housing cooperatives, this program initially must be viewed as experimental." No finer treatise on mutual housing has ever been published than that prepared and published in December 1946 by the National Housing Agency under the title "Mutual Housing-A Veteran's Guide." Part 4A of this publication, under "Financing," outlines sound principles on which cooperatives should be financed; yet a comparison of the proposed legislation with the sound principles

contained in this publication shows a complete violation of almost every sound principle recommended.

We believe that this bill is also unnecessary because the private housing industry is allotting the largest part of its output to meet the housing needs of the middle-income group.

Based on figures in the Insured Mortgage Portfolio for the third quarter, 1949, 69.2 percent of the FHA mortgages secured by new single-family homes during 1948 under section 203 had an average property valuation of from less than $4,000 to $9,389. The average property valuation for all of the 29,300 newly constructed dwelling units in 1948 under FHA section 203 was $8,965.

As the economy house program got well underway in 1949, I am certain that this average for 1949 will be much lower.

One of our Brooklyn savings banks has reported that since midsummer 1949 it has made 630 FHA-insured title I class 3 loans, with a loan limit of $4,500, in the total amount of $2,686,470 and that in addition it has commitments for 2,013 more loans aggregating $9,716,000. My own institution closed almost 2,500 loans in Levittown on properties selling at $7,990 fully equipped with electric range, electric refrigerator, and washing machine. We have further expressed preliminary approval of approximately $64,000,000 of loans to limited-dividend corporations under New York State law, which loans are to be made within the framework and upon issuance of an FHA section 207 (c) commitment. These loans in themselves will provide housing units for 6,800 families. The monthly rental or carrying charges do not and will not, in any of the above cases, exceed $15 per room, including all maintenance, mortgage charges, and setting up of replacement

reserves.

Rentals in several FHA 608 projects are also scaled lower than at any time since the end of the war, such as projects in New Milford, N. J., containing 2,871 units, with rents of $62 for three rooms and $74 for four rooms, and Camden, N. J., of 324 units, with rents of $59 for three and one-half rooms and $72 for four and one-half rooms. We cite these as typical examples of the progress which has been made by the private housing industry and private lenders in bringing housing to the middle-income group.

We firmly believe that enactment of H. R. 6618 would not be in the best public interest. It would create an unsound principle of direct Government lending; it is unnecessary because of the progress of the private residential building industry in providing lower-cost houses and a lower rental market; and it would at best produce housing of doubtful value from every standpoint, most of all from the standpoint of the tenant owners whom such legislation is proposed to help. We will be most appreciative of your committee's careful consideration of these views.

The CHAIRMAN. Thank you for your views, Mr. Held.

The committee will now adjourn, to meet tomorrow at 10 o'clock. (Whereupon, at 12:15 p. m., the committee adjourned, to reconvene at 10 a. m. Thursday, February 9, 1950.)

COOPERATIVE HOUSING

THURSDAY, FEBRUARY 9, 1950

HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C.

The committee met, pursuant to adjournment, at 10 a. m., the Honorable Brent Spence (chairman) presiding.

Present: Messrs. Spence, Buchanan, Multer, O'Brien, McKinnon, Dollinger, Mitchell, O'Hara, Talle, McMillen, Kilburn, Scott, and Nicholson.

The CHAIRMAN. The committee will be in order.

You may identify yourself, Mr. Bliss, and proceed as you desire. Mr. BLISS. Before I start my testimony I would like to express the appreciation on behalf of our people of the courteous attention we received about 3 weeks ago and the action of this committee on the other bill in which we were interested. Our folks were very much pleased with the action your committee took.

The CHAIRMAN. It gives us a feeling of satisfaction that we sometimes please our constitutents in going through all the bills we have introduced.

Mr. BLISS. We think you handled it very nicely, and we are very much pleased with it.

The CHAIRMAN. You may proceed.

STATEMENT OF GEORGE L. BLISS, CHAIRMAN, LEGISLATIVE COMMITTEE, UNITED STATES SAVINGS AND LOAN LEAGUE

Mr. BLISS. My name is George L. Bliss. I am president of the Century Federal Savings & Loan Association of New York City and chairman of the Legislative Committee of the United States League. The membership of the league comprises approximately 3,700 savings associations located in every State in the country.

These mutual savings institutions are now serving approximately 10,000,000 savings customers and are providing low-cost home-financing facilities for nearly 4,000,000 families. Year in and year out the savings associations of the country finance one-third of all of the mortgages placed on one- to four-family homes. Since the end of the war in 1945 they have started 3,500,000 families on the road to home ownership, including, up to the end of November 1949, some 547,681 veterans of World War II.

We appreciate the opportunity to present our views with respect to H. R. 6618 and H. R. 6742. These measures have been the subject of hearings before this committee for the greater part of 2 weeks, and competent witnesses, both for and against the bills, have discussed the