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proposals at some length. The 354 pages of printed testimony from the recent Senate hearings provide a further background of informed discussion of the bill's merits and demerits.

Our position with respect to H. R. 6618 can be summarized as follows:

1. The bill would provide home-financing preferences to special groups of middle-income families. These concessions include a direct pledge of Government credit, preferential interest rates, loan terms that cannot be safely met by institutions lending the savings of the public, and various tax exemptions. The cost of such preferences must inevitably be borne by all property owners, so that this program, once started and if afterward expanded, will have the direct effect of increasing the cost of home ownership to those families who are unable to use the provisions of this bill.

2. This bill introduces a new Federal housing scheme and a new Federal Housing Bureau at a time when the existing home construction industry has just completed a record-breaking year, with 1,019,000 new homes constructed. In the 4 years since the end of the war, over 31,2 million new dwelling units have been provided by private enterprise, a larger volume of new homes than has ever been constructed in a similar period of time. The national housing supply, even in the rental market, is increasing so satisfactorily that one of the bills before the committee today terminates the emergency 608 rental housing program of the FHĂ, while the Housing Expediter and various local governments are terminating rent controls almost daily.

3. Through the pledge of Government credit and the guaranty by the Government of private debt, the bill provides for loan terms and interest rates that no private lender can possibly hope to meet and still pay a reasonable and commensurate return upon the savings of the people entrusted to it. It establishes a principle which, on an

. ever-expanding basis, would ultimately transfer all mortgage lending to the Government.

4. This bill could undermine the present and future home ownership of the country. Because of its special concessions, prospective home owners will be induced to become tenants in cooperatives instead. Certainly the middle-income families looking at the several Government housing programs, will assume that Congress believes cooperative housing projects are preferable to individual home ownership. Present home owners will find a reduced market for their homes in case of sale and will be faced with the prospect of loss on their housing investments, as a result of the competition of federally sponsored and aided cooperative housing projects. We do not believe that the Congress desires to lessen the value of the homes owned by the 20,000,000 families of this country who have already placed hard-earned savings in their own homes; neither do we believe that the Congress desires to weaken the very fundamental principle of American home ownership

5. This bill provides for an inflationary issuance of Governmentguaranteed obligations in the amount of $2,000,000,000. This amount can be issued without congressional check or approval and will not appear in the direct Federal debt.

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These major objections have been expressed by many witnesses before the committee. We would like to develop and emphasize two of these points which in our opinion are the crux of the whole question.

The first relates to the advantages given this special class of middleincome families who form cooperatives and nonprofit corporations.

There is no reason why any group of people who wish to organize a cooperative housing project may not do so, right now. As a matter of fact, many of them have done so. The principal advantage of cooperative housing is that a group of families can, by this method, eliminate the landlord's profit. This bill, however, undertakes to reduce the cost of financing a cooperative housing project in a fashion that is not available to any other type of property ownership.

The advantage to be provided is the difference between a 3-percent interest rate and the going rate for mortgage money. Such going rate, varying slightly in different sections of the country and varying also with the quality of the collateral, today ranges from 4 percent to 5 percent. Funds are abundantly available within this range. Private lenders, knowing the history of the up-and-down movement of the cost of money and of the business cycle, feel it imprudent to make loans that will run for longer than 20 to 25 years.

Yet, by virtue of a Government guaranty of the indebtedness, this bill proposes a maximum term of 63 years. On these two scores then-a rate of interest that is below the market, and an amortization period that history has demonstrated to be economically unsoundcooperative housing would be provided with advantages that cannot be made available to home owners or any other classes of property owners, unless comparable legislation is enacted for them.

This is the core of the bill, in our opinion. If one is for the bill, it must be because he believes that such a preference to a small group of middle-income families is in the national interest. Any other cooperative advantages are already available. If any individual or group of individuals believes that good housing can be built better on the cooperative basis than by any other method, there is nothing to prevent him or them from doing so today, without this law. matter of fact, the financing of coperative housing has been built by veteran groups under the Serviceman's Readjustment Act.

It has been said that a large single mortgage warrants the lower interest rate that results from the provisions of this bill. If that were true, the private mortgage market would reflect it.

Mr. MULTER. Doesn't it?
Mr. Bliss. No, sir.

Mr. MULTER. Doesn't the private interest rate reflect lower interest rates in larger nonguaranteed mortgages?

Mr. Bliss. No. The fact is that large-scale mortgages in the private market carry an interest rate closely approximating the individual home mortgage rate. As an official of a home-financing institution, I might explain that individual loans have advantages in diversification as compared to project loans, that substantially offset the extra cost of servicing them.

Indeed, a study of over 19,000 mortgage loans in the New York area, quoted by Husband and Anderson, made between 1906 and 1934 showed an average loss of 0.59 percent on mortgages on one-family dwellings, as compared to an average loss of 2.72 percent on multifamily dwellings for 8 or more families.

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Because the Government-guaranteed bonds which would finance the housing called for in this bill must be sold in the open market, this has been termed private financing. We respectfully submit that there is no distinction between the sale of a Government obligation and a Government-guaranteed obligation. In either instance, the market appraises the obligation on the basis of the pledge of the good faith of the United States Government. The same people and the same institutions are the customers for both bonds.

Our second point relates to home ownership. This bill does not encourage home ownership. Owning stock in a cooperative from which you rent an apartment is not home ownership. Property ownership is much broader than the mere right of occupancy. Ownership involves the important choice of dispositon in a free market, through gift, sale, or bequest, and the important right to alter, remodel, or convert the property to other usage.

In fact, these are the principal rights that distinguish the owner from the renter. These cooperative tenants will not own their homes or apartments. They can't sell, except to the cooperative or to persons approved by it; they can't bequeath except to a person approved by the cooperative; they can't remodel; they can't change the property usage; they can't borrow money on the property; the can't even give the property to a son or a daughter, unless the cooperative approves.

We emphasize then, that the proposal which is the heart of H. R. 6618 makes special financing terms of a preferential nature, at the expense of the Government, to a small group of middle-income citizens. It gives them this advantage, not in order that they may become home owners who are admittedly an extraordinary element of strength to the Nation, but simply to give them a lower cost of housing which cannot be extended to the great mass of people in this income group without distorting the entire home-financing economy of the country.

We would respectfully point out that, despite restrictions and controls, the problem of the shortage of housing both for owner occupancy and for rental, created by wartime dislocation, is rapidly being solved. We respectfully suggest that now is the time for a respite from further housing legislation in order to give private enterprise an opportunity to finish the job.

Turning now to H. R. 6742, it would make a permanent program out of title I of the FHA. Savings associations have made a substantial number of title I property-improvement loans and, if the program is extended, many of them will continue to do so. We feel, however, that private lending institutions should be encouraged to carry on a property-improvement lending business at their own risk and without the necessity of Federal guaranty. Remarkable progress has been made in recent months in the development of additional advances or open-end mortgages as an alternative method of financing property improvement. This program holds great promise. We suggest that Congress continue to extend title I on a temporary basis only. If title I is made a permanent program, it will lessen the incentive of private institutions to develop their own means of making propertyimprovement credit available.

Savings associations have not played an active part in the 608 rental housing program and would not be greatly affected by its termination; neither would we expect to participate extensively in the revised section 207 program.

Mr. MULTER. How extensively has the association participated in the FHA mortgage program on small homes?

Mr. Bliss. A relatively small amount. The savings associations portfolio of home loans at the present time is in the neighborhood of 12 billion dollars, of which about 8 percent are in FHA mortgages.

Mr. MULTER. Are any of your members using the facilities of FNMA?

Mr. Bliss. Very few; very few.

Mr. MULTER. Are they in favor of discontinuance of the FNMA operation, too!

Mr. Bliss. Our associtions, as a group, have deplored the expansion of the operations of FNMA. They oppose the present legislation, which releases restrictions which were formerly imposed upon the acquistion of mortgages by FNMA, and as a group and as an organization would prefer to see FNMÁ liquidated and removed.

Mr. MULTER. I, for one, while I do not agree with you, want to compliment you and your associates that take the same position on your consistency and frankness. You don't want the Government to help any one group of our economy, as against any other group. At least you come in and say we should all stand on our own feet without Government assistance and I admire you for the position you take.

Mr. Bliss. Thank you, Mr. Multer. That is our position.

Mr. MITCHELL. Just two questions. You mention title I in your statement and say that, if it was made a permanent program, it would lessen the incentive of private institutions to develop their own means of making property-improvement credit available.

Mr. Bliss. Yes, sir.

Mr. MITCHELL. That has been going on since 1935. I wonder why the private institutions have not developed in that time their own method to meet the need for the property-improvement loans?

Mr. Bliss. A study has been under process by the savings associations in the country, originated in the State of New York, and it has been developing in the past 3 or 4 years to find a legal procedure by which an existing mortgage can secure an additional advance without the expense of title examination recording and the other elements which make the creation of an addition to a mortgage an expensive proposition.

Mr. MITCHELL. The inability to find an answer in 15 years indicates that you won't be able to find it except through congressional action.

Mr. Bliss. The legal problems have been difficult, but progress has been made on that score. A conference was held in New York which was attended by five or six hundred representatives of lending institutions last fall and a form of instrument has been drafted and has been approved by many legal authorities and a number of institutions in the New York areas are now making loans on that basis at a definite saving of expense to the borrower and, as a matter of fact, at a lesser cost to the borrower for interest charges than is the case under the title I loans.

Mr. MITCHELL. On page 4 of your statement, you say: "An amortization period that history has demonstrated to be economically unsound.”

I wonder if you would outline just what you mean by saying that "history has demonstrated."

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Mr. Bliss. We have two elements which affect the collateral of a mortgage: One is depreciation and the other is the fluctuation in the value of the dollar. It is rather generally agreed that 50 years is the useful life of a well constructed building in this country. That calls for a depreciation at the rate of 2 percent per annum to wipe out the investment within a 50-year period, so that a prudent lender would require that the unpaid balance on the indebtedness would at all times equal or exceed the depreciated value of the property.

Mr. MITCHELL. You have no opposition to a 50-year mortgage, then, a 50-year amortization period?

Mr. Bliss. I think that 50 years is too hazardous a period for a safe investment, and the second element that enters into that is the changing value of the dollar over such a period of time. We have had enough experience with that in the period from 1900 to 1950 to recognize that $100,000 or $10,000 invested in a piece of property may find that property worth $5,000 at one period of the cycle and $15,000 at another period of the cycle, so that within a 50-year period, let alone a 63-year period, on the basis of history, there would certainly be times when the value of the collateral was less than the unpaid balance of the debt; from that cause alone, let alone the element of depreciation.

Mr. MITCHELL. Thank you, Mr. Chairman. Mr. MULTER. May I take up that same point for a moment, Mr. Chairman.

The CHAIRMAN. Go ahead.

Mr. MULTER. You say in the second part of your statement that it is imprudent to make loans that would run for longer than 20 to 25 years. Do any of your associations make loans that run as long as 25 years?

Mr. Bliss. Yes, sir.
Mr. MULTER. Many of them do?

Mr. Bliss. Yes, sir, particularly in the case of the GI loans under the Veterans Servicemen's Readjustment Act.

Mr. MULTER. Other than those loans, do any of your members make loans to run 25 years?

Mr. Bliss. I may say this: Having a reasonable regard for their responsibility to their savings investors, they do not like to go and do not feel that the hazards of depreciation and change in the dollar warrant going beyond 20 years. They have in some localities, and with a reasonable care in the selection of the collateral, gone up to as much as 25 years.

Mr. MULTER. With the same consideration in mind, your associations would not have made GI loans for 25 years except for Government guaranties.

Mr. Bliss. There are two elements that enter into the making of GI loans. Our organization participated in the preparation of the Servicemen's Readjustment Act. We were requested by the American Legion to help devise a plan upon which a home-financing program for returning veterans could be developed. Our associations have felt some responsibility to carry out their program which they helped shape, and they have participated in the making of the veterans' loans at lower interest rates and at longer terms on a belief that that was a reasonable contribution toward readjustment of servicemen into the civilian life.

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