We carefully picked representative savings and loan associations in different asset brackets in every section of the United States. Responses were received from Arizona, Arkansas, California, Colorado, Connecticut, Florida, Illinois, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Mississippi, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, Texas, Washington, and West Virginia.

(2) What percentage of loans by savings and loan associations are under the provisions of the GI Act or under FHA provisions?

According to an estimate provided to us from official sources, the portfolios of insured savings and loan associations throughout the United States would average about 25 percent in GI loans; 6 percent in FHA loans, and 69 percent in what are known as the conventional or regular-plan loans. Please note that this is based upon a study of portfolios and is not related to assets. In the early days of the GI Act, 75 percent of all GI loans were made by savings and loan associations, and even during the first 2 years of this act more than half of all GI loans were made by our type of institution. As more lending institutions and companies got into the field the percentage of GI loans being made by savings and loan associations has naturally decreased.

However, savings and loan associations still make a heavy volume of GI loans. This is shown not only by the fact that 25 percent of their portfolios, as an average, are in GI loans, but the official VA figures for the month ending November 25, 1949, latest available, show that 24.1 percent of the total amount of GI loans that month were made by savings and loan associations.

(3) What is the average loan made by savings and loan associations? In 1949 the average home-purchase loan made by insured associations in the United States was $5,459 This comes from official sources. It is remarkable and further attests to the reliability of our own separate survey, which showed the average loan to be just a few dollars different than the national average. In other words, this points up our own survey as being truly representative of the Nation as a whole.

(4) What can be done to take care of housing needs in such a place as Quantico, Va.?

This is primarily the problem of the Marine Corps, because it is a military installation. Housing can be provided either by service appropriations or the Marine Corps can arrange for housing to be built under title VIII of the FHA, known as the military insured housing title, which was specifically set up by the Congress for this purpose.

(5) In what areas of the United States is there a shortage of home-financing funds?

The various Federal departments and agencies might be able to provide this information. Moreover, a picture should be available when the housing census of 1950 is completed.

Representative Rains asked whether the record would show that savings and loan associations were making loans during the period when there was some talk about increasing interest rates.

Starting in 1946 when the restrictions of the war period were lifted and the home building could proceed in a more normal course, official Home Loan Bank Board figures show that savings and loan associations made total home loans amounting to $3,584,492,000. The figure in 1947 was $3,810,804,000. The figure in 1948 was $3,606,788,000. At this moment 1949 official statistics have not yet been completed, but as of the end of November 1949, loans made during the first 11 months totaled $3,294,076,000. This proves that savings and loan associations were consistently doing their job in a steady manner. Official statistics also show that savings and loan associations annually make more than one-third of all of the home-mortgage loans in the United States.

Representative Multer questioned whether the average monthly carrying charge which I reported would stand analysis.

Here are the facts in regard to figures in use on actual loans in the metropolitan Washington, D. C., area for standard carrying charges for both 4 percent GI loans made on a 100-percent basis and the amounts which would be charged on 5 percent conventional loans in the same amounts. These four representative groups of loan charges may be verified by anyone at the First Federal Savings

and Loan Association of Washington, D. C. The four group of loans are as follows:

From the above table it will be seen that the total monthly carrying charges on any of the loans illustrated per thousand dollars would, if applied to the average loan of $5,514 made by the reporting associations, to which I referred in my testimony before Mr. Multer came into the room, make a monthly payment of less than the $52.58 which I reported as the average monthly payment on the loans made by the reporting institutions to the middle-income families. I wonder, therefore, if Mr. Multer did not assume that my reference to the average cost of these houses was the amount of the loan.

However, it will also be seen that even if the largest monthly payment per $1,000, namely, $7.96 as shown in the above table, were applied to a $7,000 loan to cover the entire cost of a unit as described by Mr. Multer in his original question, the total monthly charge would be $55.72 or less than the $60 which he indicated was necessary.

The CHAIRMAN. We will now hear from Mr. Epter.

STATEMENT OF LAWRENCE A. EPTER, PRESIDENT, MORTGAGE BANKERS ASSOCIATION OF NEW YORK, INC.

Mr. EPTER. Mr. Chairman, my name is Lawrence A. Epter. I am president of the Mortgage Bankers Association of New York.

I would like to say that some of the statements that I will make do not appear in the printed copy of the proposed statement that you now have before you.

This association, 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 mortgagees, 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 have, however, eight alternative proposals which should satisfactorily accomplish the same results but within the framework of the national housing law and the Servicemen's Readjustment Act, with 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 orphans of depressions.

The record in New York, incidentally, shows that every apartment house built above the average-income class was totally wiped out during the depression. The only two that were not wiped out were two cooperatives in Brooklyn, which were built by people of Finnish extraction who have carried over the theory of cooperatives housing from their own homeland and made it successful.

(2) Cooperative housing has 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.

I would like to point out here that there is a statement in the bill which makes provision for a leasehold. Under a leasehold there is no ownership. You would merely own the shelter and, regardless of whether that leasehold is 75 years or 99 years, and, without taking into acount the mortality tables, it will be impossible for the original purchaser or any member of his family, even if the liquidation occurs within 100 years, to ultimately truly own his own property, the reason being that there is still a leasehold of record and the title of the land will then revert back to the original lessor.

Mr. BUCHANAN. The equity is transferable, though, it is not?

Mr. EPTER. The equity only in the shelter. The lessor cannot do anything about it, or, at least, the lessee cannot until such time as the lessor agrees to sell at a fixed price, unless there are advance conditions set forth in the instrument in the first instance.

Mr. MULTER. What lease are you talking about, sir?

Mr. EPTER. I am talking about the provision in H. R. 6618 which gives the cooperatives the right to erect properties under a leasehold, or leasehold land, for a term of 99 years, with a renewal, or a straight term of 75 years. I say that that is not ownership.

Mr. MULTER. Can you refer to the page of the bill?

Mr. EPTER. Yes, I think I can. It is on page 30, line 8, under the heading of "Definitions":

"Mortgage" or "mortgage loan" shall mean a first mortgage on real estate, in fee simple, or on a leasehold (1) under a lease for not less than 99 years which is renewable or (2) under a lease having a period of not less than 75 years to run from the date the mortgage was executed.

That is a leasehold provision; that is not ownership.

Mr. MULTER. Well, are those leaseholds any different than the leaseholds which are referred to in large metropolitan areas as ground

leases, under which we have hundreds of large office buildings and apartment houses built?

Mr. EPTER. In cases of that nature, that is speculative investment, and in that case the speculator has a right to determine his risk.

We are talking here about legislation for housing for low- and middle-income group families. Those people are supposed to wind up with ownership. If they wind up with a leasehold they still do not own the land on which the shelter has been erected.

Mr. MULTER. Taking the experience of those ground leases of 75 years and 99 years in the metropolitan areas, where they put up big structures, as an experience on which to make a loan, having in mind that every lending institution in the country has found them good risks, for the period of the ground lease, why should we not consider them good risks for this purpose, so that we can provide shelter, in the one case, for 75 years and in the other case for 99 years?

Mr. EPTER. On two points, if you will give me the time to explain. Mr. MULTER. Certainly.

Mr. EPTER. First, all leases on large commercial properties or large residential properties, where they are on leasehold land, contain a provision that upon the termination date of that lease-whether that lease is terminated by actually running it to the maturity date or through foreclosure of the leasehold interest, or through a reversal, in one form or another-the provision in the agreement is that title to the structure itself reverts to the lessor; in order to circumvent a question of taxation there is a residual value established for the building, at the expiration of the 75 years or 99 years, and that residual value is a very infinitesimal value based on the original cost of the construction. So that the lessor, at that time, becomes actually the owner of the building and the land. Those are the provisions in a number of your large apartment units in New York.

Mr. MULTER. Are the leaseholds referred to on page 30 of this bill intended to be something other than the ground leases we are talking about now?

Mr. EPTER. Yes; because in this case we are proceeding on the theory of ownership. We are not proceeding on the theory of speculative operation.

Mr. MULTER. I do not think your conclusion follows.

The CHAIRMAN. I would suggest you let the witness complete his statement first and then interrogate him, Mr. Multer.

Mr. MULTER. Very well, Mr. Chairman.

Mr. EPTER. The allowance of 3 percent 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 of 10 percent usually used by lenders on mortgage loans of shorter duration. Depression periods have shown vacancies to be 20 to 40 percent-page 57, Middle Income Housing Hearings, Subcommittee of the Senate Committee on Banking and Currency-and therefore foreclosures would be encouraged by low allowance for contingency.

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 any possibility of any salvage by reason of the blanket cooperative loan.

On that point we would like to bring out one situation. That is that the act provides for free-standing buildings as well as multiple dwellings. Now, we believe that the only basis under which any factor of safety can be developed, if this legislation is in any way enacted, would be to restrict the construction to free-standing buildings, whether it be row houses of one-family houses or detached or semidetached buildings, so that in the event of trouble, economic or otherwise, each individual owner could then purchase his own piece of property directly from the cooperative and he would not suffer loss of equity through a general, over-all foreclosure of the blanket lien.

(3) At no time may it be expected that the cooperative purchaser would live the 50 years from the 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.

Our reason for making that statement is that the United States Census Bureau says that the average age in the United States is 29. If the average age in the United States is 29, and the first provision calls for a 50-year loan that would make 79 the earliest possible date at which liquidation of the loan debt could take place, and if for any reason there was refinancing, as provided for in the act, to extend the term to 60 years, the youngest possible individual would be 89; and if for any other reason it went beyond that, with three additional years as provided for, he would be up at 92 before he could actually acquire full title.

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. And there is a provision in the bill which gives the corporation the right to create additional facilities of a nonhousing nature for various activities of the area.

Since the 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 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 power or the interest paid to individuals through this medium of investment income. It will discourage thrift by the reduction of interest divi