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 22 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.

After calculating the holdings of savings banks in which instance more than two-thirds of the total portfolio portion was in United States Government bonds, as disclosed on page 12 of the banking department report, the average earning was 2.94 percent gross for all forms of investments including mortgages before the deduction of a cost-factor figure equal to sixty-nine one-hundredths of 1 percent for operating overhead, thereby reducing the net income figure to 2.25 percent on all investments. This record also discloses that at the time the average interest paid on time deposits was equal to 1.65 percent.

In the year 1949, savings banks increased the interest dividend to its depositors to a point equal to 1 85 percent State-wide and at the same time the interest rate obtainable on mortgage investments, including those loans in the portfolios of these institutions, dropped from 4.19 percent to 3.96 percent. It will readily be seen that with the increased cost of operation which has not as yet been computed, but with the higher dividend rate paid to the depositors and the lower yield in interest through the satisfaction of old high-income-bearing mortgages and the reinvestment of these funds in lower FHA, VA, and conventional mortgages, that the institutions in the savings banks class did not earn 2.94 percent by December 31, 1949, as they did on June 30, 1949, but will earn closer to 2.86 percent on the over-all investment picture.

For the calendar year of 1947, which is the last official report turned out by the New York State Department of Insurance, the life-insurance companies of this State carried total investments in mortgages equal to 11.7 percent and bonds, including United States Governments, in an amount equal to 78 percent. Those insurance companies not resident in the State of New York but permitted to do business in this State, including alien insurance corporations, carried 14.6 percent of their assets in mortgages and a total of 74.3 percent in all types of bonds. The country-wide earnings of every life-insurance company in the United States of every category, for the year 1948, as disclosed in the sixty-first annual edition, entitled "Compendium of Official Life Insurance Reports," showed a gross interest income on every form of investment equal to $1,472,178,994. This figure when taken against the total admitted assets of all of these life-insurance companies, which this report covers, were worth fractionally over $50,000,000,000, disclosed a gross interest income of 2.93 percent. The same factor of investment problem that holds true in the savings-banks field, undoubtedly holds true in the lifeinsurance field, and the gross income of 2.93 percent on investments for the calendar year 1949 will undoubtedly be reduced in the same proportion as the savings banks. This loss in reduction of income is for the same reason that highinterest yield on mortgages is unobtainable through the repayment or satisfaction of existing high interest-bearing mortgages and the replacement of these investments with mortgages carrying the standard interest rates of 4 and 42 percent.

It can readily be seen by the afore-mentioned figures that should the Government, through direct or subsidized lending at substandard interest rates, enter this field of investment it would materially reduce the amount of mortgages available for instituitional investment and automatically the income of the depositor and the individual policyholder, many of whom are veterans and widows of veterans of the United States armed forces in both World War I and World War II, and it would ultimately result in lesser earnings for the institutions. National Cooperative Housing Association financing in the proposed law will result in more deficit financing with its incumbent attack on thrift. This attempt to subsdize the so-called middle-income group, which is a definite misnomer, is entirely unnecessary, unwarranted, and uncalled for, because financing is available to all citizens within the bracket they can afford. The Government is not expected to again create specialized housing and the passage of these amendments would do just that for the benefit of a specific class already covered and completely taken care of by the passage in 1949 of the Federal housing law.

The official reports of the Federal Housing Administration designated as Fifteenth Annual Report of the Federal Housing Administration for 1948, at page 59, shows the classifications of not only income but the size of mortgages that were involved in the year's work of that Government agency.

Before these figures are quoted, may we respectfully call to the attention of the Congress, in the opinion of the private lending field, that this agency is a most competent and cooperative organization.

Of all houses financed through FHA in 1948, more than one-half were purchased by families in the annual income group of $2,000 to $4,000.

In the case of veterans, FHA figures show that more than 76 percent of all veterans purchasing homes used the combination FHA 203 loan coupled with

Veterans' Administration 505 loan, and that this group has an income as a class of less than $4,000 per annum.

Fifty-one and six-tenths percent of all FHA applications for the year 1948 showed an income on the part of the purchasing family of a sum less than $3,500 per annum.

All of these figures of the Federal Housing Administration do not include the actual results of the economy-housing program, which was started in March of 1949 and which resulted in larger production of homes at lesser prices than the record of 1948 shows. None of these purchasers as a class were provided, directly or indirectly, with Government subsidies or special financing or tax-exempt devices not freely available to all other citizens. Yet the cooperative housing proposals as contained in the H. R. 6618, specifically calls for special treatment to special groups.

Seventeen percent of all Federal Housing Administration mortgages in the year 1949, based on preliminary reports, were those under title II, section 203b2B, with a maximum loan of $6,000 for a term of 30 years. Total carrying charges extended on this average type house is $43 per month in major metropolitan areas, including real-estate taxes, interest on principal, fire insurance, and water charges. These items are broken down roughly as $30 for interest and principal, $9 for taxes, $1.10 for fire and hazard insurance, and $1.50 for water. Nonurban areas would result in a lesser real estate tax charge and would thus reduce the total carrying charge from $40 to $38 per month. Heating and hot water supply in northern climes would account for $9 per month by average and in the south approximately $3.50 per month.

Thus, full ownership, including total carrying charges and heat, could be obtained from $50 to $52 in the areas adjoining the metropolitan centers in the North, and from $41.50 to $43.50 in the equivalent areas in the South. (This average home contains four rooms, full expansion attic for one or two bedrooms to be added as needed, on a plot of land of 5,000 to 6,000 square feet.) Cash investment at the time of purchase ranges from $300 to $500 for nonveterans and zero investment for veterans.

The low-income group purported to be reached under the proposal of the national cooperative housing law, in other words, those earning $2,000 or $2,500 per year, are presently being taken care of under title I, class 3 section of the National Housing Act, wherein a 15-year loan is provided (not 30 years) and the carrying charges in the outlying sections in the metropolitan areas of New York amount to under $35 per month, which is less than the rentals charged in fully subsidized public housing projects.

The maximum loan as presently set forth in the law is $4,500.

These citizens who are availing themselves of the use of title I, class 3, have an income of $50 per week and less and find it expedient and satisfactory to purchase these homes within their income brackets without the benefit of any special subsidy by the Federal Government.

The Hoover Commission on Government Reorganization specifically went on record against direct Government lending. Since this was an impartial Commission appointed by President Truman and staffed by the finest group of impartial but practical experts, it would seem that these direct and indirect lending factors in this bill as now presented, after only cursory examination and listening, to the largest of pressure groups, are a repudiation by the administration of its outstanding Commission appointed by the President for impartial reporting of facts.

Rentals are, and have been, adjusted by area under title VI, section 608, and on all new applications filed, first, subsequent to July 28, and secondly, to November 1, these rentals have been consistently lowered by the Federal Housing Administration as the basis for its consideration to insure.

The success of the entire 608 housing program since the cessation of hostilities can no longer be questioned. Apartments in all rental income groups have been made available and the rentals have been fixed by the Federal Housing Administration in each area on the basis of the ability of the income secured from rents to properly support the amount of mortgage insurance issued by the Federal Housing Administration.

With the continued high rate of issuance of FHA commitments under title VI, section 608, it is our opinion that the rental housing market in the rental brackets set forth by the FHA will become saturated when all of the structures for which commitments have been issued, have been built. Federal, State, and municipal public housing authorities projects have also adequately covered the income groups intended to be covered by the National Cooperative Housing Act and