not have difficulty in getting the sort of housing they would like to have-and a measure that, at best, can take care of 250,000 of them is not likely to satisfy as crucial a need as is claimed to exist.

The Administrator adds, "The problem is most acute for families who for economic or other reasons should rent rather than buy." Yet the proposed measure is not primarily concerned with rental housing but with a special type of proprietorship, and one involving very special hazards to the individual at that for no scheme has yet been designed to protect the cooperator against the defaults of his neighbors.

The present outlook is clearly for an even greater market interest in lowerand middle-income housing than in the past. A shift in the production emphasis to lower priced models was an outstanding feature of house building in 1949; and the trend continues. Builders are well aware of the necessity of broadening their markets by price and model changes as the rate of family formation declines. Moreover, the threat of a tighter money market which appeared late in 1948 has disappeared. Today interest rates are probably generally as low as they have been at any time since 1946 and 1947. There is no factor in the current situation that does not presage a steady enlargement of the market and a constant improvement in the quality of the whole supply.

THE MEASURE DESTROYS THE FLOW OF MORTGAGE FUNDS

This measure carries, perhaps to the ultimate, the process of moving from one general financial market in which all demands may make themselves felt to a multiplicity of separate, mutually exclusive markets each designed to serve some special need and each, in the end, dependent for its functioning upon the intervention of the Federal Government.

This process may be illustrated by a reference to the history of FHA. Initially it was designed to provide a means for pooling a major portion of the risk involved in residential mortgage lending. The mortgage market was viewed as a unit; and the FHA facility was available to all, within very broad limitations. It was the theory that, with the underlying support of mortgage insurance and certain improvements in appraisal and lending practices, the market as a whole would function more effectively, and its benefits would be extended to encompass broader and broader areas.

The first step away from this concept of the unity of the market came in 1937 when a special type of mortgage insurance was made available for a special class of dwellings-those valued under $6,000. From then on the shift has been rapid, with special loan terms being provided for farmers, war workers, veterans, lower-cost housing, prefabricated housing, large scale operations, cooperatives, public bodies, and so forth, until today there may be counted some 50 ways of designing the terms and conditions of an FHA loan, depending upon the special kind of structure and the special class of borrower that may be involved.

The process has gone much farther than FHA. We now provide for loans to public housing projects through the Public Housing Agency and to submarginal farmers through the Farmers Home Administration. We have provided for a special class of loans for veterans through the Veterans' Administration. We have provided for especially favorable loans for prefabricated housing through the RFC. In each of these numerous cases it has been assumed that a specially designed set of loan terms was essential to meet a special need. In order to direct the flow of funds into the desired channels it has been necessary for the Federal Government to use a variety of insurance benefits, guaranties, subsidies, direct loans, mortgage purchases, to permit the issuance of tax-free bonds, and so on. When one method of support has failed, as in the case of the guaranteed GI loans during 1949, it has been necessary to provide another type of support, such as the unrestricted purchases of GI mortgages by FNMA.

With this measure, the process becomes almost complete. It will be hard to find any class of housing or any class of borrower, except a negligible remnant of the wel-to-do who have not had some benefit especially arranged for it. The bill creates another federally supported specialized institution to provide an especially tailored loan to a special group of people who happen to have a special range of income and who organize themselves in a special way. All others are excluded. The financial market is assumed to be ready to absorb the kind of securities offered at an assumed rate of interest; but it would be a small matter if the calculation failed, since the move from a security guarantee

by the Treasury to one purchasable by the Treasury has proven to be an exceedingly short one.

The process has been one not only of increasing compartmentalizing of the mortgage market, but of increasing dependence upon the Federal Government. Responsibility for the characteristics of residential loans, for the risks of lending, for the distribution of funds in the market has in very large measure passed to Government officials.

PROBLEMS RAISED BY THE GRANTING OF GROUP PRIVILEGES

Beyond the gradual and certain disappearance of private lending in all but form, this process has other significant aspects. While now all but an inconsequentially small group is to have special attention, obviously not all members of all the groups provided for can receive the benefits laid before them. For example, large as it is, the present public or Government housing program will offer 810,000 units to an assumedly eligible third of the population, and the present bill 250,000 for another assumedly eligible third. Consequently, the distribution of the Government's benefits becomes in itself a highly specialized selective process in which the determination of who is to be favored is certain to raise grave problems for the future. At best the operation is likely to create greater inequalities and more irrational inequalities than now prevail. Inequalities within the favored groups are bound to lead to endless demands to expand the inclusiveness of the activities. The liability for 250,000 units today becomes one for a million units tomorrow. But the demands for expansion of the Federal involvement do not end here. Where one group has a special advantage, another group, if it has comparable political strength, is certain to demand, and likely in the end to receive, comparable treatment. If middle-income persons buying homes as members of a cooperative association are deserving of a 3 percent interest rate, as the HHFA Administrator promises to deliver under this new plan, then middle-income families buying as individuals will, quite understandably, demand the same and, if it is good for them, why is it not good for farmers also? There is no stopping place to such expansion once it is under way.

Recognizing this danger, Mr. Robert H. Winters, Minister of Reconstruction and Supply in Canada's liberal government, had this to say in Parliament when last November 15, an issue similar to this one confronted his country: "Representations have been made that the rate of interest, payable by cooperatives or by individuals who have built their houses under cooperative schemes should be less than the rate of interest available to home owners. As will be clear to honorable members, this point of view cannot be accepted. It does not seem reasonable to us that individuals with a proprietary interest in the house in which they live should be afforded better terms under a cooperative than if they arranged the financing of their houses on an individual basis. The Government deems it unwise to create such differential."

* * *

In conclusion, it is evident that the volume of housing is being expanded as rapidly as is consistent with an avoidance of renewed inflation. The end of the price drop sometime last fall and the steady level of costs during the past several months are testimony to this fact. The new measure, therefore, could not add to the volume of housing otherwise likely to be built without threatening a price rise for all. Nor is it possible that the new measure could materially alter the distribution of the expected volume of housing during the present year or for several years to come. It cannot, in other words, accomplish its announced objectives.

The measure can, however, seriously interfere with the orderly development and expansion of the market now under way by promising an incalculable kind of competition-very much as the provision of "yield insurance" 2 years back appears to have influenced the virtual cessation of independent housing investment by insurance companies. Moreover, the proposal is certain to intensify demands for more extensive and even more generous forms of Government intervention. And it is certain also to add strain to a badly unbalanced budget. There is nothing in the current housing situation that justifies incurring the risks that are inherent in this bill.

STATEMENT ON H. R. 6618 PREPARED FOR THE HOUSE COMMITTEE ON BANKING AND CURRENCY, BY NATIONAL FEDERATION OF SETTLEMENTS AND NEIGHBORHOOD CENTERS, NEW YORK, N. Y.

The neighborhood houses making up the National Federation of Settlements are located in 79 cities in 27 States and the District of Columbia.

In 1948 workers in some 60 settlements in 29 cities interviewed over 500 families to discover just what was meant by bad housing and overcrowding.

Nearly two-thirds of all families studied are in the income range whose housing needs must be met by public housing. We do, therefore, congratulate the Eighty-first Congress on the forward-looking program of public housing passed in the first sesison.

Most of the remaining one-third of those studied are in the income range of $2,700 to $4,400 while Mr. Raymond Foley, Housing Administrator, states will be given an opportunity for better housing through the passage of H. R. 6618 now before this committee.

Some of the situations faced by these families were revealed in our study. We, therefore, quote reports from several areas.

"There is the problem faced by Mrs. Emerson in Minneapolis; her two daughters, two sons and two grandchildren all share a home consisting of merely a kitchen and two bedrooms. This situation is causing much trouble in the family. Mrs. Emerson's sons, who are in their 20's, are working and they don't have a chance to take a bath when they come home from work. She says no one can really have any friends in. She is disturbed because her older boy, who is just home from the service, is threatening to leave and find a room of his own if the family cannot find another place to live. This bothers his mother, not only because she hates to have her family broken, but because the son helps financially. Mrs. Emerson is a widow and is not physically able to hold a job. "Another story of overcrowding-this one from Boston-tells of the Grant family consisting of the mother, father, a son of 28 and two girls 15 and 22 years, a married son, his wife and little boy, as well as the grandmother. Both sons are veterans and trying desperately to find homes. The 28-year-old one is waiting to be married. Since there is not room in this house for his bride, he has been house hunting for 15 months.

"This family of nine lives on the third floor of a shabby wooden house with a leaking roof and rickety wooden stairs, paying $27 a month rent for six rooms. The grandmother and two girls sleep in one unfinished attic room, the oldest boy in the other. The younger boy's family sleep in one bedroom and his parents in the other. The house is unsanitary and dark but the landlord raised the rent from $25 a month to $27 a month, giving no specific reason except the mounting costs of living. The poor conditions and crowded quarters have made family relations unhappy and strained.

"The housing, shortage results not only in families being doubled up, but turning to forms of shelter totally inadequate for health and a good social environment. The two situations following are not unusual:

"First, take the case of a family of four in San Pedro who had been living in a trailer which burned down. They have now moved into a hotel in which is given over entirely to family units. During the day the place is very noisy. The family is living in one room which never gets any sun having only one north window. The room will really hold only two beds and is very crowded when the rollaway bed is used. For this one room the family pays a rent of $55 a month. They cook on a two-plate stove in the same room. The family uses a community bathroom shared by 13 to 14 families. The toilets leak and the shower is stopped up

"Then, the Jenks family of six, living in Boston in an apartment which served as an Army barracks during the war, presents a similarly serious picture. Mr. Jenks earns $35 a week as a mechanic and receives $25 a week in veteran's benefits. His apartment is one of six in a unit, with asbestos walling between units, and rents for $26.50 a month. The building is of frame construction covered with paper and has no cellar under it: the roof leaks and the walls are beginning to separate. Refuse is dumped on the beach nearby with the result that this barracks community is infested with rats from the dump, and they have chewed a hole in the corner of the Jenks' house."

It is a well-known fact to all settlement workers that many families continue to live in unsanitary crowded conditions after their income would provide better housing simply because most communities have only two price ranges in housing,

"the low" and "the high," and the income is not sufficient to cover the cost of "the high."

It is, therefore, extremely important that both public housing and housing for the lower middle-income group proceed along together; otherwise, we may tend to put an incentive reward on low income that is not appropriate to our society.

Resolutions have been passed annually at our national conference supporting a program by the Government of more adequate financing to meet the housing needs of this low middle-income group. The most recent action was at our last national conference in Cleveland, Ohio, June 11, 1949, and states:

"The desperate and continuing housing needs of thousands of low and middleincome families in 250 neighborhoods in 79 cities and 27 States, where settlements daily come face to face with low-income people, compel the National Federation of Settlements at its annual conference in June 1949, at Cleveland, Ohio, to once again vigorously urge the passage and immediate implementation of a national housing program that will (b) provide Federal aid for housing of families in the lower middle-income area through the liberalization of lending policies.

We, therefore, recommend the approval of H. R. 6618 by the Committee on Banking and Currency and its passage by the Congress.

Hon. BRENT SPENCE,

NATIONAL ASSOCIATION OF HOUSING OFFICIALS,
Chicago, Ill., February 3, 1950.

Chairman, Committee on Banking and Currency,
House of Representatives, Washington, D. C.

DEAR MR. SPENCE: The attention currently being given by your committee to proposed legislation for providing aids to better housing for middle-income families has aroused widespread interest among the members of this association, which includes more than 2,000 local, State, and Federal officials directly concerned with housing matters.

I have been instructed by the board of governors of this association to submit for the information of your committee the following statement on the subject: The association recognizes that the Federal assistance authorized by the Housing Act of 1949 has made possible a program which will materially assist the low-income segment of our people; yet we must also recognize that a very considerable portion of American families have incomes too high to permit them to obtain housing under this program, and tco low to enable them to rent or buy housing provided by private enterprise with FHA or other forms of Federal assistance.

It is our opinion that the Congress of the United States should adopt without delay appropriate legislation intended to provide means whereby housing of sound standards of design, construction, livability, and size for adequate family life, in well-planned, integrated residential neighborhoods can be produced and made available for families of moderate income. No such program, however, should be considered which would extend the principle of federally subsidized public housing as set forth in the Housing Act of 1949 to serve this group, or which would place responsibility for the administration of any Federal subsidy program for this group in the hands of the local public agencies responsible for the low-rent housing program.

Respectfully submitted.

JOHN I. ROBINSON, President.

STATEMENT OF LAWRENCE A. EPTER, PRESIDENT, MORTGAGE BANKERS ASSOCIATION OF NEW YORK, INC. (BASED ON THE REPORT OF LEGISLATIVE COMMITTEE OF THAT ASSOCIATION REGARDING H. R. 6618, THE COOPERATIVE HOUSING ACT)

This association, of which I have the honor of heading, has in its membership, savings bank, life-insurance companies, mortgage-loan correspondents of savings and life companies, commercial banks, servicing agents for institutions and private lenders, including approved mortgages, as set forth under the rules and regulations of the National Housing Act.

We wish to go on record as strongly opposing the provisions contained in H. R. 6618. We are, however, offering alternative proposals which should satisfactorily accomplish the same results but within the framework of the national housing law and the Servicement's Readjustment Act, within minor amendments.

We also respectfully petition for the reinstatement of section 505a of the Servicemen's Readjustment Act of 1944, as amended.

Our reasons for opposing cooperative housing are based on fundamentals. (1) Cooperative housing has been the child of prosperity and housing shortages, but the orphan of depressions.

(2) Cooperatives have been sold in the good times, but have been lost by its purchasers when economic conditions reversed themselves and each cooperator was not able to hold up his end of the bargain and pay the maintenance costs.

(a) The allowance of 3 percent for vacancy is entirely too low for even reasonable safety expectancy except in times of high prosperity. The allowance of 7 percent under title VI, section 608, is short of the safety factor of 10 percent usually used by lenders on mortgage loans of shorter duration. Depression periods have shown vacancies to be 20 to 40 percent (p. 57, Middle-Income Housing Hearings, Subcommittee of Senate Committee on Banking and Currency), and, therefore, foreclosures would be encouraged by low allowances for contingency.

(b) Foreclosures would be disastrous to the average uninformed buyer in such a venture and would destroy the equity created by the purchaser, through no fault of his own-and without the possibility of any salvage by reason of the blanket cooperative loan.

(3) At no time may it be expected that the cooperative purchaser would live the 50 years from time of purchase to see the liquidation of the debt and the full unencumbered fee ownership of this shelter unit, and nothing but debt would be passed on to his widow and orphans.

Proposed tax exemption on the bonds, notes, or debentures of the proposed cooperative corporation, at a time when the United States Government is in need of additional taxable revenue, is something hard to understand.

It places a further burden not only on the Federal Government but on the States and municipalities by precluding these other divisions of government from collecting any taxes on any activity of the corporation, including nonhousing.

Since interest rates of the Government are controlled and managed by the Federal Reserve and the Secretary of the Treasury, the pegging of interest at one-half of 1 percent above the average going rate is not only not applicable but it does not reflect the underlying risk and the nonliquidity of real estate or mortgages.

Mortgages constitute the chief source of income of savings banks, savings and loan associations, and life-insurance companies, and mortgage interest earnings are the lifeblood and form a very substantial portion of the income of all institutions and commercial banks engaged in investment not only for their own portfolios, but those making construction loans for other permanent lenders. The entrance of the Government into this direct lending field under the guise of free marketing of unconditionally guaranteed bonds would be a catastrophe since it would be a direct attack on the securities of the savings of depositors and policyholders of these institutions and to the individuals through a reduction of the earning powers or the interest paid to individuals through this medium of investment income. It will discourage thrift by the reduction of interest dividends to the average citizens and taxpayers of this country who have been educated to the advantages of thrift since this country's inception.

Government bonds make up the most substantial portion of interest-earning investments of all these institutions, most of which are mutually owned. With United States Government bonds bearing a gross interest rate of 21⁄2 percent if purchased at par, it becomes necessary to invest funds in an amount in excess of 22 percent in order to be able to pay to depositors or policyholders a rate of 2 to 3 percent in the respective fields mentioned herein.

Mortgage interest by average in the State of New York, as disclosed by the official reports of the superintendent of banks for the year ending June 30, 1949 (the most recently published and tabulated period), was 4.19 percent. This included mortgages which had been on the books for many years bearing interest as high as 6 percent. The full impact of the FHA and GI financing programs subsequent to the cessation of hostilities in 1945 had not been fully felt, nor had the effect of the FHA economy housing program sponsored 3 months earlier been made known.