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Throughout our extensive operations under section 608, we found that in order to give proper examination to applications for rental properties and to make adequate inspection thereon, we were required to charge an appraisal and inspection fee in connection with such cases of at least eight-tenths of 1 percent. Section 207 currently limits such fee to one-half of 1 percent, and we are accordingly recommending that this be changed to 1 percent, as provided in section 5.
To facilitate working out defaulted cases and avoid foreclosure wherever possible, we are recommending appropriate amendments contained in sections 6, 7, and 8 to provide that debentures issued under section 207 be issued as of the date of default, as has been the case in section 608, instead of issuing such debentures as of the date foreclosure proceedings commenced.
TITLE VI, SEC. 608, WAR HOUSING AND VETERANS' EMERGENCY HOUSING
Net commitments issued.
Net mortgages insured 1.
Mortgages in force.
Terminations by type:
Projects acquired by FHA.
Sold with reinsurance.
Mortgages assigned to FHA.
1 In the case of the Veterans' emergency housing program, excludes correction cancellations: 6 projects for $762,900 and 113 units.
Mr. MULTER. Mr. Chairman, may I inquire of Mr. Richards at this time?
The CHAIRMAN. Yes.
Mr. MULTER. Commissioner Richards, have you heard any objection to the extension of these provisions as recommended in H. R. 6742? Mr. RICHARDS. I don't think I have, Congressman.
Mr. MULTER. In other words, there has been no suggestion that this is now going to make permanent another socialistic part of our Fair Deal program?
Mr. RICHARDS. I have not. On the contrary, I think virtually all of the people engaged in this program, participating in making loans, and those receiving the loans, are enthusiastic for its continuance.
Mr. MULTER. And there has been no cry of socialism or communism about this?
Mr. RICHARDS. I have heard none.
Mr. MULTER. That is all I have of the Commissioner.
Mr. NICHOLSON. Mr. Chairman.
The CHAIRMAN. Mr. Nicholson.
Mr. NICHOLSON. How much is this going to hurt the savings banks in my State?
Mr. RICHARDS. Which section are you referring to, Congressman? Mr. NICHOLSON. It is the whole bill.
Mr. RICHARDS. This bill provides amendments to the National Housing Act. Title I, which is the modernization and repair loan feature of the National Housing Act, has been used by the savings banks and other banks of your State very greatly. To my knowledge, they are very much in favor of the permanent extension of title I of the National Housing Act. It gives them an opportunity to loan their money at a rate which is acceptable to them and equitable to the borrowers.
Mr. NICHOLSON. Before the Federal Government got into building houses and taking loans, the same as these banks did, we used to get from 412 to 5 percent; that is the deposit. Now, in Massachusetts we are getting 12 percent.
If we are going to loan money under this proposition of 3 percent, I am wondering how long the savings banks can stand it, because that is where you have to get your money.
Mr. FOLEY. Congressman, you are probably not referring to 6742 upon which Mr. Richards was testifying, but rather to 6618, cooperative proposals.
Mr. NICHOLSON. That is right.
Mr. FOLEY. The question, therefore, is directed to what would be the effect of such a proposal upon savings banks.
Mr. NICHOLSON. On the depositors, yes.
Mr. FOLEY. I don't believe it would have any effect on the depositors and savings banks from the angle that I think you have in mind, as to whether or not they could give as high an interest rate, or dividend in the case of savings and loans, as is presently the case. I don't see how a proposal such as is contained in that bill would affect the return to depositors and savings institutions.
Mr. NICHOLSON. Of course, the way it is worked out, as I told Mr. Richards, the depositors were getting around 4 to 5 percent on the money they had deposited in the savings banks. As soon as the Fed
eral Government stepped in and started to do the work that they had been doing for 150 years, the depositors' dividends went down graddually until now they are getting 12 percent.
Now, we are bringing in something here that gives them 3 percentI mean you can borrow money at 3 percent. It doesn't give the bank that. I don't see how you can possibly milk these savings banks any more. By taking this business away from them, they can loan money at 412 to 5 percent and give the depositors a little money for something they have put in there for a rainy day.
Mr. FOLEY. To start with, apropos your statement of 42 to 5 percent yield on savings deposits, which is a long time ago, as I recall it, at that same time those same depositors in a great many instances, and a great many others who were not depositors, were paying as high as 12 percent interest for the money they had to borrow to acquire a home to live in. Rates as high as 12 percent were known in this country at that time, and very commonly 7, 8, and 6 percent.
It is interesting to note that in the same period that you speak of the volume of savings placed upon deposit has increased tremendously. I don't see, Congressman, how this program in the character and scope proposed in this bill could be expected to cause a reduction in the present rates of interest paid to depositors by savings institutions, any more than the purchase of Government securities by savings institutions and others in a similar volume which reduce the payments they are presently paying to depositors.
Mr. NICHOLSON. Every savings man in my State has about half of their assets in promises to pay from the Federal Government now at around 212 percent, or something like that.
Mr. FOLEY. This bill does not contemplate any lower return upon the type of private capital invested in the securities of the mortgage corporation proposed than presently that same type of capital gets from that same type of securities in which it is invested.
Mr. NICHOLSON. What I am trying to get at is that my local banks have never charged more than 6 percent, to my knowledge, anywhere in my State, savings banks. They may have charged 12 percent on some second mortgage to some shyster, but the legitimate bank in my State, anyway, loaned money at not over 6 percent. Maybe some cooperative banks charge 7 percent.
Then the Government stepped in and we had to compete with the Government on their loans because they gave a lower rate of interest. They are making a lower rate of interest here to the middle class, so-called. They are not going to the savings banks en masse and borrow money at 5 percent when they can get it at 3 or less from the Federal Government, so it must be hurting them.
Mr. FOLEY. Congressman, to start with, your reference to the past history in the sense of the Government making loans-I suppose you are referring to the insured mortgage operation, and probably to the veterans' guaranteed mortgage operations?
Mr. NICHOLSON. The first one was the Home Loan Corporation.
Mr. NICHOLSON. Some time around 1934 or 1935.
Mr. FOLEY. I would believe that the Home Owners Loan Corporation, rather than reducing the ability of lending institutions to pay to depositors, increased their ability to do so because there the Federal
Government, with a direct lending proposal, went in and rescued those savings and lending institutions all over this country, and did a great deal to put them back on a basis in which they could meet obligations, and could attract further savings deposits.
That is not the same type of thing that I thought you were referring to, and which has been the major operation in which the Federal Government has participated, which has been the insurance or guaranty of loans, in none of which cases did the Government make any loans. We merely, through the machinery provided by the Congress, set up a means of guaranteeing or insuring the risk taken by the lending institutions, which risk, because it was not previously set up on what we have since learned to be sound, properly amortized basis and geared to a proper set of standards, had led to the very situation in which the HOLC became necessary.
The removal of risk, the reduction of the danger of loss on loans, was the balancing factor which made it possible for lending institutions to make these loans at a lower interest rate, but it is their money they are lending at the lower interest rate, and, of course, the use of the money is not required of any lending institution.
Mr. NICHOLSON. Of course they have to compete with the Govern
Mr. FOLEY. No; they don't compete with the Government in the insured mortgage loan system, or guaranteed loan system. They make use of aids and devices provided by the Government for use by the public through them and not through the Government, and only, of course, if they desire to.
As a matter of fact, there is a wide distribution of the types of loans in almost any typical lending institution which lends for its portfolio rather than lending for disposal to a secondary market.
You will find a percentage of FHA insured mortgages, a percentage of Veterans' Administration guaranteed loans, a percentage of loans of other conventional types at varying rates of interest resulting in what amounts to a well-rounded service to the community, but a service which presently our studies has shown has a gap in it. This bill proposes a vehicle to take care of that gap, but none of them are mandatory on any lending institution, and I have yet to observe in the studies I have made that any lending institutions have found the competitive situation created, as you suggest, so compelling upon them that they have not been able to maintain an average return on their portfolio of loans sufficient to maintain a flourishing business.
Mr. NICHOLSON. How do you account for the fact that these savings banks have reduced their dividends to the depositors from 42 percent down to 12 percent In other words, they are doing business now at 3 percent less than they were before, so that the poor fellow who has $100 in the bank gets practically nothing back from it.
Mr. FOLEY. I might suggest, Congressman, although perhaps it is not germane to this whole issue, that that might well be the result of a far happier general condition in the country. We have, during the period that these several and other vehicles created by the Congress have been operating, reached a much higher level of general prosperity in this country rather than spotty and poorly distributed prosperity, with the result that a great many more people have a great deal more money which is excess to their daily, current needs, and