instead, act to interfere with and compete with the flow of funds for private investment purposes, especially in a time of stringent credit. These programs are numerous, and the tendency with each session of Congress is to add new ones and expand old ones. A specific example was the 1958 instruction to FNMA to provide funds for FHA and VA financing at sub-market interest. Others are the programs of direct government loans for veterans' housing and college housing. Both of these have been expanded each year since their inception. While the purposes of these programs may be laudable, their claim on the Treasury is no greater than could be demonstrated for numerous other social needs. Each expansion argues for a further expansion as well as for the extension of the idea to other areas. Whenever money is made available at rates of interest below the market rate, there is no practical end of the demand that will be created. The Association recommends: 36. That the Employment Act of 1946 be amended so as to make the objective of price stability equally important as that of maxi mum employment as a goal of national economic policy. 37. That the statutory limitation on the interest rate that the Treasury may pay on long-term obligations be removed. 38. That authorizations to make direct government loans or contracts for the payment of grants and subsidies be subject to the approval of the Appropriations Committees as well as the legislative committees of the Congress, and that such authorizations be subject to annual review by the Appropriations Committees. 39. That the federal government pursue a policy of avoiding the creation or expansion of direct lending and of seeking means of drawing private investment into the areas for which public funds are sought. 40. That, so long as direct lending programs are continued, they bear rates of interest which fully reflect the cost of money to the Treasury and the administrative expense incurred by the Treasury. 7. Meeting the need for better data In a complex economy, effective planning by both business and government requires an adequate flow of information on economic conditions. Notwithstanding the vital role that they play in economic and legislative policy, the areas of construction and real estate finance have been badly neglected. Believing that the collection and dissemination of such information, for the benefit of the legislative and executive branches of govern ment and the interested public, is an appropriate function of the federal government, the Association recommends: 41. That Congress continue in the Bureau of the Census the expansion of the scope of construction statistics which it instituted in 1959, and that it also provide for the collection of dependable data on mortgage lending activity and sources of investment funds. (The exhibits prepared by Stan Friefeld & Associates, Inc., have been submitted to the subcommittee and are in the committee files.) Mr. BARRETT. Then I assume you are not against the bill in toto? Mr. NEEL. No, sir. Mr. ADAIR. No, sir; not in toto. Mr. BARRETT. Isn't it true, Mr. Adair, that the economy today needs a "shot in the arm"? Mr. ADAIR. Mr. Congressman, I have seen marked signs of improvement in recent weeks. I don't agree that it needs the "shot in the arm" to the same extent that some people do; no, sir, I do not. I don't think it needs Mr. BARRETT. Well, we have 9.9 percent unemployed in Pennsylvania. That section needs a tremendous "shot in the arm.' Mr. ADAIR. I am sure in certain highly industrialized areas it does. Mr. BARRETT. Well, now if that is true and if this bill is accepted, won't it provide work in the construction field? Mr. ADAIR. Mr. Congressman, certainly it seems like that is trying to be done. I don't know that I agree entirely with the method. Mr. BARRETT. That is all, Mr. Chairman. Mr. ADDONIZIO. Mr. Ashley? Mr. ASHLEY. On page 7 of the statement, Mr. Adair, you say that a 40-year mortgage would seriously increase the lender's risk unless he is merely to act as a risk-free agent of the Government. As far as your association is concerned, speaking for the mortgage bankers, how will this increased risk reflect itself as far as the availability for credit for this program is concerned? What do you think would be the response of the members of your association as far as making credit available for the program is concerned? Mr. ADAIR. Mr. Congressman, I think as I commented a few moments ago, several of the long-term investors such as life insurance companies and mutual savings banks have indicated grave concern over the 40-year term. It is certainly a new approach and a longer approach than has been submitted to them previously and under this proposed bill in order to entice them to invest in these mortgages, in event of foreclosure they would be paid off in cash rather than in Government obligations. Mr. ASHLEY. Well, would they be only interested for them to pay considerably less than the face value of the paper? Mr. ADAIR. That question was asked a few moments ago and I said I wasn't qualified to say whether they expect a discount. It looks to me like you are really offering them a Government obligation that requires no underwriting of any kind on their part. They put the money up. If it goes bad, it falls on the FHA and they get the cash and yet they are getting a yield that is commensurate with mortgage yields rather than with bond yields. That is the way I see it. Mr. ASHLEY. And this is what is behind your suggestion that if we are going to do that we may as well get into direct loans? Mr. ADAIR. I think it would be of interest, Congressman-I am sure you gentlemen probably have the figures available to see what has happened under this 40-year 221 program in many areas. Your record of payment and cases in default are far greater than any other program. Where did those people come from? They were dis placed, either through urban renewal or through highway construction programs. You are talking about a class of people who are far less able, and there you are speaking of only on a $9,000 maximum loan. I think it would be of interest to see some figures in certain localities where that program has been active. Mr. ASHLEY. Thank you very much. Mr. ADDONIZIO. Mr. McDonough. Mr. MCDONOUGH. Mr. Whatley, in the Senate hearings, Mr. Charles Wellman, president of the Glendale Savings & Loan Association, was a witness. I don't know whether you read the hearings or not, and he was also a member of the task force committee that the President appointed to survey the housing situation, and he testified very sharply against the 40-year, no-down-payment section of this bill and made the point that not only would you find difficulty in obtaining financing, but that the Federal Government in the special assistance section of FNMA was picking up the tab, FHA was insuring the loan, FNMA was picking up the balance under the special assistance section. I don't know whether you have said much about that, but what is your opinion of the 40-year loan both being insured as far as the loan is concerned by FHA and then having FNMA pick up the mortgage? Mr. ADAIR. Mr. McDonough, you addressed the remark to Mr. Whatley. I think you meant it to me. Mr. MCDONOUGH. Yes, I am sorry, Mr. Adair. Mr. ADAIR. We didn't touch on that program, but I am very happy that you raised the question. Under the proposed bill, under multiplefamily housing where it is a 40-year loan, 100 percent, at an unrealistic interest rate as you all are aware because it is based on the average of the outstanding Government bond obligations, and certainly no private investor in my opinion is going to be willing to invest in that type of security because I think roughly now the yield would only be about 32 percent, perhaps even a little less, and all of that type of financing will have to go into the special assistance program of FNMA and yet that is for nonprofit corporations and in my own city where we have public housing, urban renewal is under our Atlanta Housing Authority, so what does it mean? It means that the housing authority can initiate a program of this kind, they have got more flexibility as to the earnings of the individuals that can go into these units where they have got very stringent regulations on public housing. Consequently, many thousands of units will be built under this program, and I simply say I see no difference between this and public housing. If we are going to do it, if we have got to have it, even though I am opposed to it, I think we ought to be realistic about it and call it what it is. Mr. MCDONOUGH. Well, there is another point that I think deserves consideration, the maximum $15,000 of the 40-year no downpayment, including the cost of the land. Mr. ADAIR. I was talking of multiple housing, now you are back to the single unit. Mr. MCDONOUGH. Yes. I can understand your point on the public housing, but on the 40-year loan, $15,000 maximum, which includes 69408 0-61-42 the cost of the land, that leaves very little for a home after you pay the average cost for a housing lot in any metropolitan area in the United States. The cost of the land would absorb nearly a third, or probably almost a half of the $15,000 in my area out in California. Mr. ADAIR. Well, then the program couldn't work. I don't see how it could, with land costs that high. Mr. MCDONOUGH. How about in your section? Mr. ADAIR. Well, in Atlanta under this 221 program which I think is a parallel case with a $9,000 loan, I dont' see how any builder can put up a house there under that program and pay more than around $1,250 to a top of $1,500 a lot which will include the improvement costs like your sanitary facilities which would be between 15 and 20 percent of the total. Mr. MCDONOUGH. Well, considering the amount of money left for the building after you buy the land, considering the labor costs across the country, the cost of materials which are higher now than they were 10 years ago, and then considering the fact that it has to be a security for a loan for 40 years, it has got to be built a little better than the average $15,000 to $20,000 house for a 25-year loan, and then considering the fact that the original owner is not going to stay there 40 years people don't usually stay in the same place 40 years-all of these are important factors in connection with this kind of program, are they not? Mr. ADAIR. Yes. Mr. MCDONOUGH. Wouldn't they be considerations as far as your group is concerned if you were to assume the mortgage, if you were to look at the property, all of these things would have to be considerations before you would invest at all? Mr. ADAIR. Absolutely. Mr. MCDONOUGH. That is all, Mr. Chairman. Mr. ADDONIZIo. Thank you, gentlemen, I am sure the committee appreciates your testimony. Our next witness is Mr. Boris Shishkin, representing the American Federation of Labor and the Congress of Industrial Organizations. I see he has with him our two very good friends, Bert Seidman and John Edelman. Would you gentlemen come forward, please? You may proceed, Mr. Shishkin. STATEMENT OF BORIS SHISHKIN, SECRETARY, HOUSING COMMITTEE, AFL-CIO, ACCOMPANIED BY BERT SEIDMAN AND JOHN EDELMAN Mr. SHISHKIN. Thank you, Mr. Chairman. I am Boris Shishkin, secretary of the Housing Committee of the American Federation of Labor and Congress of Industrial Organizations. I have with me Mr. John W. Edelman of the Textile Workers Union of America, who is a member of our AFL-CIO Housing Committee, and Mr. Bert R. Seidman, economist, of the AFL-CIO, who is the country's leading economic analyst of housing. I greatly appreciate the opportunity to appear here today to present the views and recommendations of the American Federation of Labor |