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tee that the financing provisions of the Senate version of H. R. 6618 are "cosiderably more generous than the Swedish legislation.” (Middle-income housing, hearings before a subcommittee of the Committee on Banking and Currency, U. S. Senate, 81st Cong., 2d sess., on amendments to S. 2246, p. 321.) He reported that the interest rate on cooperative housing mortgage loans in Sweden averages 4 to 4.5 percent.

The exceedingly liberal financing provided for in the bill leads to the third major objection, namely, that this cooperative housing program will serve largely to stimulate another round in the inflationary spiral in the housing field. The amounts involved are large, calling for mortgage loans up to 3 billion dollars in the first year of operation and an additional 1.7 billion dollars thereafter.

This program is another step designed to provide housing more cheaply primarily by reducing financing costs. It is our view that the series of steps which have been taken in the postwar period to reduce home-mortgage financing costs have played a large part in the inflationary process which has occurred in the housing field and that the cooperative housing program will merely serve to carry the process further.

It is agreed by nearly everyone, including Housing and Home Finance Administrator Raymond M. Foley, that the root of high costs in the housing field lies in high building costs and not in high financing costs. However, the probable effect of the easy financing terms proposed in this bill will be to continue upward pressures on building costs and to prolong wasteful building methods. Efforts to reduce over-all housing costs should be directed to the root of the difficulty, namely, high building costs.

It is now over 4 years since the end of the war, and it is our view that if the Government would stop pumping funds into the housing field by means of devices designed to reduce financing costs the way would be paved for an adjustment downward of building costs and the problem of providing housing for middle-income groups, if such a problem really exists, would soon be solved by private builders and lenders.

Certainly, available Government statistics indicate that an excellent job is now being done under the existing programs toward providing housing for the middle-income family, which Commissioner Foley has defined as within the income range of $2,700 to $4,400. Complete statistics for 1949 are not yet available, but according to FHA estimates, 68 percent of the purchasers of new homes in the first 6 months of 1949 under section 203 had incomes of less than $4,800.

Data appearing on page 59 of the Fifteenth Annual Report of the FHA show that 50 percent of the purchasers of new homes in 1948 under section 203 had incomes of less than $4,000 per year, and over 65 percent had incomes below $4,800. With respect to the purchasers of existing homes in 1948 under section 203, FHA statistics show that 55.6 percent had annual incomes of less than $4,000, and 69.6 percent had incomes under $4,800.

Moreover, FHA figures show that 76 percent of all veterans buying homes in 1948 under combination FHA-VA-insured loans had incomes of less than $4,000 and 51.6 percent had incomes under $3,500. With the development of the economy-house program last year, complete

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figures for 1949 should show an even more favorable record of housing for middle-income families.

The fourth reason why we are opposed to H. R. 6618 is that the excessively liberal financing provisions of the bill are considerably out of line with the terms of mortgage finance currently dictated by market forces. The terms on which uninsured or insured FHA mortgage loans are now being made are at the market, but the heavy flow of VĂguaranteed loans to Fanny Mae indicates that terms on these loans are somewhat below the market.

In questioning the degree to which the mortgage interest rate in the cooperative housing proposal diverges from the FHA and VA rates, Senator Paul H. Douglas made the following significant comment to Commissioner Foley during the recent hearings before the Senate Subcommittee on Housing and Rents:

You are going to have great difficulty because you have your feet on divergent (akes of ice. One foot is on the 412 percent of FHA, and, if I may mix my metaphors and give you another foot so that you will have three feet, then another foot is on the 4 percent for VA

and another foot on the 212 ; and I think you may find that each cake of ice may be moving in different directions; and in that case, then somebody is going to sit down in the middle.

We have already seen what happened because of the divergence between 4 and 412 percent, which resulted in Fannie Mae being loaded to the gills on housing loans, and it may be that this perhaps will become another Fannie Mae.

Finally, this proposal is directed toward providing housing for the so-called middle-third of income receivers in any given locality. It is stated by Government officials that the public housing program has taken care of families in the lowest third of income receivers, and that this bill is needed to take care of providing housing for the middle third of income families.

The life-insurance business is greatly concerned over the tendency on the part of Congress to try to take care of the American people. Where does this process of Government taking care of the housing needs of our people come to an end? It is our view that such measures come in serious conflict with our system of free initiative and private enterprise which has provided the American people with the highest standard of living in the world.

In summary, we oppose the cooperative housing program as set forth in H. R. 6618 on the grounds that:

(1) It actually establishes a strictly governmental program for housing cooperatives and provides a minimum opportunity for private incentives.

(2) Loans under the program are to be made on an unrealistically liberal basis.

(3) The program will serve largely to create additional force to the inflationary spiral in the housing field.

(4) It calls for financing terms which are considerably out of line with the market.

(5) It sets forth more class legislation which we believe to be inimical to the functioning of a free initiative and private enterprise economy.

This does not mean that the life-insurance business opposes cooperative housing in principal. As a matter of fact, the machinery for further development of cooperative housing now exists in section 207 (c) of title II of the National Housing Act. It is our view that this section, and section 608 of title VI if extended, should provide an adequate basis for developing a sound cooperative housing program for middle-income families.

Mr. TALLE. How many policyholders did you say there are in the United States?

Mr. O'LEARY. The estimate is around 80,000,000 policyholders.

Mr. TALLE. Does that include Government insurance covering veterans of World War I and World War II ?

Mr. O'LEARY. That estimate does not include Government insurance.

Mr. TALLE. I want to ask you, inasmuch as the Department of Labor reported that in January there were 412 million, at least, persons unemployed, what effect will that have on maintaining insurance policies?

Mr. O'LEARY. I don't think the effect is a very serious effect. The one thing that we have seen is that insurance is a relatively depreciation-proof business; that people give up almost everything else before they give up payments on their insurance. The relatively low volume of unemployment, even 412 million unemployed, I think most economists would regard being a pretty low volume of unemployment.

I believe that it is usually figured that 3,000,000 is sort of a normal volume of unemployment, so we don't have, in terms of that form, . we don't have an excessively large number of involuntarily unemployed, and I don't think at this stage of the game it would be a very important factor in maintaining insurance-policy payments.

Mr. Talle. Do you think that many of the unemployed may not be policyholders!

Mr. O'LEARY. That many of the unemployed may not be policyholders?

Mr. TALLE. That is right.

Mr. O'LEARY. I don't see how I could really answer that. It would be a matter purely of opinion. I think it might just as likely be that quite a few of them were policyholders.

Mr. TALLE. I realize that that is something you could only guess at. Lastly, is it not true that the last 2 or 3 years very many people have bought as cheap homes as possible and then they have proceeded to do a lot of work themselves, improving them, and there are a lot of people who never did any carpentry or masonry work who simply proceeded to build structures in their entirety because it was the only way that they could afford to build homes for themselves?

Mr. O'LEARY. I think there is certainly evidence that there is a large army of amateur carpenters who have made improvements in their homes, and I think there are many instances in which men have built their own homes. I regard that as being a rather favorable sign in our economy. It is evidence of a pioneering enterprise spirit that I think has made this economy the economy that it is today.

Mr. TALLE. I agree with you. I think it is a most heartening thing, and I know of enough people within my own acquaintance who have done that, so I feel very good about this evidence that the American spirit of enterprise is not dead, and we in Congress should not do anything to destroy that spirit but rather give it a chance to live and grow.

a Mr. MULTER. Mr. O'Leary, before you leave, I just want to straighten out this record. I don't know whether Dr. Leonard Silk will appear before us or not, but you referred to his statement before the Senate committee and indicated that he said the cooperative mortgage loans in Sweden have averaged 41/2 percent.

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Mr. O'LEARY. That is correct.

Mr. MULTER. If he said that there, the fact must have been straightened out on their record, because they have reported that the average rate was 412 percent and fluctuating before World War II, but they also pointed out there that, as is the fact, that mortgage financing in Sweden today is as follows: The first mortgage loans carry 3 percent and usually runs for the life of the building, second mortgages carry 31/2 percent, and third mortgages carry 3 percent interest, with the second and third mortgages running up to 40 years. That is the fact as to cooperative housing in Sweden.

Mr. MITCHELL. Is their general interest rate the same as ours? Would that 3 percent compare as our 3 percent does to other rates here, or is their general interest rate higher?

Mr. MULTER. On commercial loans the interest rate would be higher, but as far as all building in Sweden—private, municipal, and cooperative—all get the same interest rate and terms of amortization.

Mr. MITCHELL. They are talking about building interest rates, but how do all interest rates

Mr. MULTER. Other interest rates are higher than these mortgage rates?

Mr. MITCHELL. No; but are they higher than our interest rates? Mr. MULTER. I am not sure of that.

Mr. MITCHELL. My understanding is that their interest rate generally is a little higher than ours.

Mr. MULTER. It is my impression they run over 6 percent on commercial loans.

Mr. O'LEARY. I think the Government rate is around 21% and 3 percent, which would bear out the general idea of long-term loans.

Mr. MULTER. In Sweden, whether you are a private builder, municipal or cooperative, you get the same advantage of these mortgages as to rates and terms.

Mr. O'LEARY. Just to be sure the record is clear I want to quote from the Senate hearings so that there is no misunderstanding about my quotation of Dr. Silk.

Mr. MULTER. Bear in mind, I don't say you misquoted Professor Silk. I just want our record to show what the facts are. I don't charge you with any misquotation of the record there. I don't think anybody picked him up at the time and pointed out to him that he was talking about a period prior to World War II and not to what is happening now.

Mr. O'LEARY. I don't think that is true. I just finished reading from Dr. Silk's book, so that I would have the facts. He was in Sweden for 1 year in 1946. He was in Sweden for 1 year, and the Senators went over there and in 2 weeks got all of these facts.

Mr. MULTER. The Senators that were there in 1949 and the members of this committee of the House that were there in 1949 learned what was happening there in 1919 and do not agree with what he wrote prior to that.

Mr. O'LEARY. I wanted to make it clear that it wasn't before the war. It was 1946 when he spent his year there. I would rather imagine that Dr. Silk has kept in touch with Government publications from Sweden in the intervening period, because his dissertation was not finished, his book was not finished until 1948.

I have seen those same figures that were brought back by the committee that went there, and I think, so far as I know, that they are accurate, but I do think that it is important to know that there may be some controversy over these figures, since Dr. Silk spent a year there and studied the figures carefully and has been in close touch with the Government statistics in the period following that time, and he specifically states that the average rate is more like 4 to 412 percent. That is the only point I am making.

Mr. MITCHELL. Of course, 1946 was still a war year in Sweden, practically speaking, so he was probably using statistics from earlier years.

Mr. O'LEARY. I can't say for certain about that.

The CHAIRMAN. The House is in session now, and there will be a roll call in a very few minutes. If there are no further questions, you may stand aside. We are glad to have your views. Mr. Clarke is the next witness.

STATEMENT OF W. A. CLARKE ON BEHALF OF MORTGAGE

BANKERS ASSOCIATION OF AMERICA

Mr. CLARKE. In connection with 6742, the Mortgage Bankers Asso. ciation has no objection to the provisions of it.

In connection with 6618, the cooperative provosion, we would like to, first, put ourselves on record as stating that we are not in

any sense of the word opposed to cooperatives. As a matter of fact, it is quite possible that the early part of this bill, which provides for assistance to cooperatives in the form of education and in the form of helping them set up cooperatives, might be a very useful affair.

Beyond that, we are opposed to it. We are opposed to it, No. 1, because we are opposed to direct Government lending, and, in our opinion, this bill is still direct Government lending. Even though it undertakes to set up a new Government instrumentality, it is the same thing as proposed last year, in reality, in which the Government is guaranteeing the bonds. It is the same thing as Government lending. It ends up in a rate of interest in which there is special class legislation again, which, in our opinion, would very decidedly hurt the total present financing structure on real estate.

If there were a provision set up whereby assistance could be given to cooperatives in their legislative program, there are in existence today all the necessary financing procedures that would take care of cooperatives. Section 608, if extended, or section 207, provides all the necessary means for cooperative housing, as far as the public is concerned. It would at the same time, ther, hold to the private-finance lending institutions the ability to loan in this area, which is now far and away the large portion of which they have to do.

In addition to that, the term of cooperatives for 50 years, in our opinion, is much too long from a point of view of safety and would, again, have a very bad effect on the financing and values of existing real estate.

Just because a group of us here can get together in the form of a cooperative and have a monthly carrying charge of approximately $3.23 per month, which is your estimate of what would happen under this bill, as against what you and I as individuals might do in the ownership of our own home on the basis of the lowest possible rate now

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