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They have done it on that ground, in addition to other grounds, and they do not feel that other than as a part of a veterans' program it is a reasonable program, a reasonably sound thing to do.

Along with that, they have undeniably been aided or prompted in their reasoning by the fact that the loans are partially guaranteed. They regard that entirely as a temporary operation which will be terminated as the veterans are put into their own houses and the provisions of the law expire, and they view it with some concern certainlv as a permanent part of the economy of home financing.

Mr. MULTER. Let me suggest this to you with reference to the comparative percentage of losses; from 1936 to 1944, if you didn't have HOLC, that your losses on your one-family dwellings, percentagewise, would have been at least as high if not higher than those on multifamily dwellings. Furthermore if you take as the average period of amortization

the total length of time each of those mortgages were against the buildings, one-family dwellings, plus the 12 to 15 years they then had to pay off under HOLC, you will find that the average mortgage ran over 30 years.

Mr. Bliss. Mr. Multer, I will agree, certainly, to your first fact, that HOLC entered into the one-family house field and not into the multifamily dwelling, is a fact which would alter these statistics if that complete story were available.

So far as your second point is concerned, life of mortgages, the great trouble here is what is an average picture. There are individual mortgages, which by virtue of renewals and extensions have run over a long period of years, but usually, of course, with payments on principal being required as a condition.

On the other hand, the experience of our 3,700 institutions with respect to the average life of the mortgages, surprisingly enough, is that there is a complete turn-over of the mortgage portfolio in every 7 or 8 years.

Mr. MULTER. A mortgage still remains against the single-family dwelling, even though the mortgage may change?

Mr. Bliss. You mean it may be refinanced in the hands of another purchaser?

Mr. MULTER. Precisely. The mortgage may change during the period of the lifetime of the house, nevertheless the house continues to be mortgaged for as much as 30 years in many instances, and sometimes longer. In my own community, which I think is one of the finer single-family communities in Brooklyn, I think at least half of the houses there have been standing for at least 40 years and it is not a shabby neighborhood by any means, and almost the entire other half of them are more than 20 years old and don't yet show any signs of deterioration. They are still good mortgage risks. I think that is typical of most communities in this country.

Mr. Bliss. That is true.

Mr. MULTER. Unless there is an influx of trade or industry which will change the residential feature or character of a neighborhood, it continues indefinitely as a good home-mortgage risk.

Mr. Bliss. That is true, Mr. Multer, but I believe the census figures show that approximately 40 percent of the homes of the country are free and clear and that there is mortgage indebtedness of only about 60 percent of the homes. And with respect to refinancing, what happens in this mortgage turn-over is that a new buyer comes in, and he may put fresh money into the property or he may remodel it and remodernize it, and so a new loan is placed on that by another institution which wipes the slate clean and starts it off as a fresh transaction.

That does result in the continuance of a mortgage in varying amounts and by different lenders over a term of years, that is undeniable.

Mr. MULTER. Don't you agree that the experience HOLC taught us with amortized mortgages on small dwellings has gone a long way in bringing that percentage up to 40 percent of the mortgage-free homes?

Mr. Bliss. It is undoubtedly an element as to the homes which HOLC refinanced. But if I could put a word in for the savings asso ciations, I would like to say that they have done that since 1831, and the pattern which HOLC established in 1933 legislation was the pattern of the savings and loan mortgage which had been running for over a hundred years at that time, so that the savings and loan experience on its monthly-payment mortgages parallels that which you have cited with respect to the HOLC mortgages.

Mr. KILBURN. On that point, might I ask a question? · The CHAIRMAN. Yes.

Mr. KILBURN. Do you think that anybody who starts out to buy their home, if they are going to take 50 years to do it, they are just kidding themselves and everybody else, aren't they?

Mr. Bliss. I think 50 years is a pretty long-
Mr. KILBURN. You have to be pretty young.

Mr. Bliss. This is a pretty long contract for anybody to enter into. The likelihood that the same family will be able to occupy it for 50 years, of course, is not borne out by the statistics of turn-over and movement and migration of families, for one thing.

The fact that the typical lifetime of a well-built building is about 50 years is another element in the depreciation table, and thirdly, as I said, I believe before you came in, the prudent lender has to recognize that the value of the dollar is going to change, and the fluctuations up and down may well eliminate any equity within that period.

Mr. KILBURN. Of course, the only reason for making it 50 years is to have the amortization payments lower?

Mr. Bliss. That is correct. That is what I understand.

Mr. KILBURN. Let's make it a hundred years and have your grandchildren pay for it and have it be just half as much.

Mr. DOLLINGER. May I ask a question?
The CHAIRMAN. Yes.

Mr. DOLLINGER. Supposing those loans were made for only 10 years, would the banks really be satisfied with such mortgages? It is not your contention that you would like to have the obligations in existence as long as possible. If the mortgages were short-termers and terminated quickly how could lending institutions stay in business? Don't you agree that lending institutions prefer long-term obligations?

Mr. Bliss. That is not the position of the savings institutions. In the making of mortgage loans, we make 800,000 home loans each year and have been making them for the last 4 years. The loans which we make in home financing are completely repaid within the period of amortization. Our institutions prefer a loan which will be fully repaid within a period of 10 to 15 years, when that is within the family budget, and stretch those maturities out from 15 to 20 years in those

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cases where, first, we have a well-built house, and, secondly, where that is the best that the family can do to carry it.

We have no aversion to 10-year mortgages where families are able to budget themselves. In fact, we prefer them.

Mr. DOLLINGER. Do you prefer prepayment on the mortgages?

Mr. Bliss. No. The savings associations of the country typically, in some instances by statute and otherwise by tradition, permit prepayment of home loan at any time and in any amount. They permit prepayment, yes.

The CHAIRMAN. What would you consider the average useful life of an ordinary dwelling?

Mr. Bliss. Of an ordinary dwelling, at least in the part of the country with which I am personally familiar, that is, the eastern seaboard, in the northeastern part of the country, 50 years. I have a theory which is not pertinent to legislation, but I would like to advance it, if you will listen to me.

I have a theory of slum clearance, you know. It is impractical but interesting. If we could have a law which would require that every building be amortized and depreciated over a 50-year period, and at the end of 50 years it had to be torn down, you see, we would have no more slums.

The CHAIRMAN. There are many buildings that are older than that.

Mr. Bliss. Yes, Mr. Chairman. We have some houses which are able to hurdle, you see, from the phase of being an old, worn-out house over into a period of antiquity and become antique property, you know, which "Washington slept here” or something of that reason makes it a landmark of some value, but those are relatively rare in the statistics of housing.

The CHAIRMAN. The upkeep depends on the character of people who occupy them? Mr. Bliss. That is correct. If a house is to be remodeled, it would

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cost as much to tear it down than as to build anew.

The CHAIRMAN. What is the average life of an apartment building?
Mr. Bliss. Fifty years, we think, is a good average.
The CHAIRMAN. Wouldn't 50 years be all right?

Mr. Bliss. Those are the ones that are pointed to by the public housing advocates as the reason why we ought to have public housing. We agree that they ought to be torn down, only we don't think that they should be substituted with public housing.

Mr. TALLE. Mr. Chairman.
The CHAIRMAN. Mr. Talle.

Mr. TALLE. Will you repeat in substance what you said about your plan a moment ago?

Mr. Bliss. You mean my slum-clearance plan!
Mr. TALLE. Yes.

Mr. Bliss. Yes, sir. If we could pass a law-and I say right now we couldn't do so

Mr. TALLE. You are pessimistic. Anything can happen here.

Mr. Bliss. I will state it without editorial comment. If we could pass a law which could require every property owner to provide by amortization for the depreciation of his building, of his residence, of his home, of his apartment, just as factory owners do, see, of industry plants, at the rate of 2 percent per annum, so that at the end of 50 years he had accumulated a sum that he could afford to write off the building entirely; then we require that for that 50-year period, tear it down, demolish it completely, we would have no more slums, because slums are old, antiquated housing that is still standing in which people are permitted to live.

Mr. TALLE. Did you characterize that a moment ago as impractical ?

Mr. Bliss. Impractical to the extent that I rather doubt that we could get a legislative body to actually enforce that as a piece of law. Mr. TALLE. On that point, I think I agree with you; otherwise I

; approve of your plan.

Mr. KILBURN. My house should have been torn down 75 years ago.

Mr. Bliss. Whenever I make this statement, I run into these instances of fine old

houses that have been kept standing. Mr. KILBURN. It cost my father $3,000 in 1880, and it cost me $26,000 to do it over.

The CHAIRMAN. If there are no further questions, Mr. Bliss, you may stand aside. I congratulate you on the brevity and clarity of your written statement.

Mr. O'Leary, you may identify yourself. STATEMENT OF DR. JAMES J. O'LEARY, DIRECTOR OF INVESTMENT RESEARCH OF THE LIFE INSURANCE ASSOCIATION OF AMERICA

Mr. O'LEARY. My name is James J. O'Leary, and I serve as director of investment research of the Life Insurance Association of America, My statement has reference to H. R. 6618. It is respectfully submitted on behalf of the American Life Convention and the Life Insurance Association of America, jointly representing life-insurance companies which underwrite over 96 percent of the life insurance in force in the United States. These organizations have a combined United States membership of 215 companies, with resources exceeding $52,000,000,000, held on behalf of nearly 80,000,000 policyholders.

As of November 30, 1949, the latest date for which information is available, 49 United States legal reserve life insurance companies which report to the Life Insurance Association of America, representing 89 percent of total admitted assets of all United States companies, held an aggregate of 10.4 billion dollars of real-estate mortgages, of which 2.7 billion dollars were FHA insured and a little over 1 billion dollars were guaranteed by the Veterans' Administration. In addition, on the same date these 49 companies held 293.5 million dollars of residential real estate for investment purposes.

The life-insurance business is opposed to the program as set forth in H. R. 6618 for the following reasons:

This program is intended to eliminate direct lending by the Federal Government to housing cooperatives and nonprofit corporations, but it is our view that it does not actually accomplish that purpose. The bill does provide that the National Mortgage Corporation for Housing Cooperatives shall issue partially tax-exempt notes and obligations for purchase by private investors. To this extent, it is true that funds to finance the cooperative housing program are to be derived from private sources.

However, from this point on the program is strictly Governmentcontrolled, with private investors having no influence in the operation of the National Mortgage Corporation for Housing Cooperatives. Under the bill, the Housing and Home Finance Administrator is provided with the following inclusive powers:

(1) To make preliminary advances to assist in the formulation of cooperative housing projects.

(2) To appoint the Board of Directors of the National Mortgage Corporation for Housing Cooperatives with the proviso that eventually two out of five of the Directors are to be appointed from representatives of the cooperatives.

(3) To supervise the National Mortgage Corporation for Housing Cooperatives.

(4) To determine the eligibility of cooperatives or nonprofit corpo. rations for loans.

(5) To certify the housing projects.
(6) To certify rents charged in the projects.

(7) To determine the amount of the mortgage loan on a given project.

It seems evident that, with the direct control which the Government holds over the cooperative housing program, there is very little of a private nature in the proposal.

Secondly, loans made to housing cooperatives or nonprofit corporations under the proposal are placed on an unrealistically liberal basis. It is provided, for example, that the cooperatives must subscribe to capital stock of the National Mortgage Corporation for Housing Cooperatives in an amount equal to 712 percent of the mortgage loan made to each cooperative. However, only one-third of this amount is payable prior to the receipt of any proceeds of the loan, with the remaining two-thirds payable in installments over a 20-year period.

Accordingly the equity of cooperatives will amount to only 21/2 percent of the mortgage loan at the time the loan is made. In the case of nonprofit corporations, the entire 712-percent equity is payable in installments over a 20-year period. To all intents and purposes loans.

therefore, loans to cooperatives under the bill are 971/2-percent Beyond that the lcans are to be amortized over a 50-year period, with the possibility of extension, at the discretion of the Corporation, to 63 years. The net result is that the National Mortgage Corporation for Housing Cooperatives, employing a full Government guaranty of interest and principal payments on its obligations, along with a partial tax exemption of these obligations, and a very long period of amortization of its loans, will presumably be in a position to provide loans to cooperatives and nonprofit corporations at a 3-percent interest rate.

Added to this, the Housing and Home Finance Administrator, in order to encourage the planning and starting of housing cooperatives, is empowered to make preliminary advances for developmental purposes of up to 5 percent of the cost of each project. It is our view that the terms on which mortgage loans are to be made to cooperatives under this bill are unrealistically liberal.

In this connection it is important to note that Dr. Leonard S. Silk, assisant professor of economics at Simmons College, who has published an authoritative study on Swedish cooperative housing entitled "Sweden Plans for Better Housing," testified before the Subcommittee on Housing and Rents of the Senate Banking and Currency Commit

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