cases where, first, we have a well-built house, and, secondly, where that is the best that the family can do to carry it.

We have no aversion to 10-year mortgages where families are able to budget themselves. In fact, we prefer them.

Mr. DOLLINGER. Do you prefer prepayment on the mortgages?

Mr. BLISS. No. The savings associations of the country typically, in some instances by statute and otherwise by tradition, permit prepayment of home loan at any time and in any amount. They permit prepayment, yes.

The CHAIRMAN. What would you consider the average useful life of an ordinary dwelling?

Mr. BLISS. Of an ordinary dwelling, at least in the part of the country with which I am personally familiar, that is, the eastern seaboard, in the northeastern part of the country, 50 years. I have a theory which is not pertinent to legislation, but I would like to advance it, if you will listen to me.

I have a theory of slum clearance, you know. It is impractical but interesting. If we could have a law which would require that every building be amortized and depreciated over a 50-year period, and at the end of 50 years it had to be torn down, you see, we would have no more slums.

The CHAIRMAN. There are many buildings that are older than that. Mr. BLISS. Yes, Mr. Chairman. We have some houses which are able to hurdle, you see, from the phase of being an old, worn-out house over into a period of antiquity and become antique property, you know, which "Washington slept here" or something of that reason makes it a landmark of some value, but those are relatively rare in the statistics of housing.

The CHAIRMAN. The upkeep depends on the character of people who Occupy them?

Mr. BLISS. That is correct. If a house is to be remodeled, it would cost as much to tear it down than as to build anew.

The CHAIRMAN. What is the average life of an apartment building? Mr. BLISS. Fifty years, we think, is a good average.

The CHAIRMAN. Wouldn't 50 years be all right?

Mr. BLISS. Those are the ones that are pointed to by the public housing advocates as the reason why we ought to have public housing. We agree that they ought to be torn down, only we don't think that they should be substituted with public housing.

Mr. TALLE. Mr. Chairman.

The CHAIRMAN. Mr. Talle.

Mr. TALLE. Will you repeat in substance what you said about your plan a moment ago?

Mr. BLISS. You mean my slum-clearance plan?

Mr. TALLE. Yes.

Mr. BLISS. Yes, sir. If we could pass a law-and I say right now we couldn't do so

Mr. TALLE. You are pessimistic. Anything can happen here.

Mr. BLISS. I will state it without editorial comment. If we could pass a law which could require every property owner to provide by amortization for the depreciation of his building, of his residence, of his home, of his apartment, just as factory owners do, see, of industry plants, at the rate of 2 percent per annum, so that at the end of 50

years he had accumulated a sum that he could afford to write off the building entirely; then we require that for that 50-year period, tear it down, demolish it completely, we would have no more slums, because slums are old, antiquated housing that is still standing in which people are permitted to live.

Mr. TALLE. Did you characterize that a moment ago as impractical? Mr. BLISS. Impractical to the extent that I rather doubt that we could get a legislative body to actually enforce that as a piece of law. Mr. TALLE. On that point, I think I agree with you; otherwise I approve of your plan.

Mr. KILBURN. My house should have been torn down 75 years ago. Mr. BLISS. Whenever I make this statement, I run into these instances of fine old houses that have been kept standing.

Mr. KILBURN. It cost my father $3,000 in 1880, and it cost me $26,000 to do it over.

The CHAIRMAN. If there are no further questions, Mr. Bliss, you may stand aside. I congratulate you on the brevity and clarity of your written statement.

Mr. O'Leary, you may identify yourself.

STATEMENT OF DR. JAMES J. O'LEARY, DIRECTOR OF INVESTMENT RESEARCH OF THE LIFE INSURANCE ASSOCIATION OF AMERICA

Mr. O'LEARY. My name is James J. O'Leary, and I serve as director of investment research of the Life Insurance Association of America. My statement has reference to H. R. 6618. It is respectfully submitted on behalf of the American Life Convention and the Life Insurance Association of America, jointly representing life-insurance companies which underwrite over 96 percent of the life insurance in force in the United States. These organizations have a combined United States membership of 215 companies, with resources exceeding $52,000,000,000, held on behalf of nearly 80,000,000 policyholders.

As of November 30, 1949, the latest date for which information is available, 49 United States legal reserve life insurance companies which report to the Life Insurance Association of America, representing 89 percent of total admitted assets of all United States companies, held an aggregate of 10.4 billion dollars of real-estate mortgages, of which 2.7 billion dollars were FHA insured and a little over 1 billion dollars were guaranteed by the Veterans' Administration. In addition, on the same date these 49 companies held 293.5 million dollars of residential real estate for investment purposes.

The life-insurance business is opposed to the program as set forth in H. R. 6618 for the following reasons:

This program is intended to eliminate direct lending by the Federal Government to housing cooperatives and nonprofit corporations, but it is our view that it does not actually accomplish that purpose. The bill does provide that the National Mortgage Corporation for Housing Cooperatives shall issue partially tax-exempt notes and obligations for purchase by private investors. To this extent, it is true that funds to finance the cooperative housing program are to be derived from private sources.

However, from this point on the program is strictly Governmentcontrolled, with private investors having no influence in the operation

of the National Mortgage Corporation for Housing Cooperatives. Under the bill, the Housing and Home Finance Administrator is provided with the following inclusive powers:

(1) To make preliminary advances to assist in the formulation of cooperative housing projects.

(2) To appoint the Board of Directors of the National Mortgage Corporation for Housing Cooperatives with the proviso that eventually two out of five of the Directors are to be appointed from representatives of the cooperatives.

(3) To supervise the National Mortgage Corporation for Housing Cooperatives.

(4) To determine the eligibility of cooperatives or nonprofit corporations for loans.

(5) To certify the housing projects.

(6) To certify rents charged in the projects.

(7) To determine the amount of the mortgage loan on a given project.

It seems evident that, with the direct control which the Government holds over the cooperative housing program, there is very little of a private nature in the proposal.

Secondly, loans made to housing cooperatives or nonprofit corporations under the proposal are placed on an unrealistically liberal basis. It is provided, for example, that the cooperatives must subscribe to capital stock of the National Mortgage Corporation for Housing Cooperatives in an amount equal to 712 percent of the mortgage loan made to each cooperative. However, only one-third of this amount is payable prior to the receipt of any proceeds of the loan, with the remaining two-thirds payable in installments over a 20-year period. Accordingly the equity of cooperatives will amount to only 21/2 percent of the mortgage loan at the time the loan is made. In the case of nonprofit corporations, the entire 72-percent equity is payable in installments over a 20-year period. To all intents and purposes, therefore, loans to cooperatives under the bill are 972-percent loans.

Beyond that the leans are to be amortized over a 50-year period, with the possibility of extension, at the discretion of the Corporation, to 63 years. The net result is that the National Mortgage Corporation for Housing Cooperatives, employing a full Government guaranty of interest and principal payments on its obligations, along with a partial tax exemption of these obligations, and a very long period of amortization of its loans, will presumably be in a position to provide loans to cooperatives and nonprofit corporations at a 3-percent interest rate.

Added to this, the Housing and Home Finance Administrator, in order to encourage the planning and starting of housing cooperatives, is empowered to make preliminary advances for developmental purposes of up to 5 percent of the cost of each project. It is our view that the terms on which mortgage loans are to be made to cooperatives under this bill are unrealistically liberal.

In this connection it is important to note that Dr. Leonard S. Silk, assisant professor of economics at Simmons College, who has published an authoritative study on Swedish cooperative housing entitled "Sweden Plans for Better Housing," testified before the Subcommittee on Housing and Rents of the Senate Banking and Currency Commit

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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

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 VAguaranteed 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 cakes of ice. One foot is on the 42 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 21⁄2; 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 42 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 ade