5. It provides in effect Government competition, controlled from Washington, for the selection of home sites, planning, construction, and occupancy, including rent control, which is obnoxious locally, and which no private citizens can meet.

6. Since by this means the Government is providing houses upon a basis which no private citizen can meet, its effect on builders and lenders will be to deter home building and home financing.

7. Its effect upon the entire economy is injurious because the emission of $2,000,000,000 of free and easy 100-percent Government credit is extremely inflationary and will further increase the cost of living and especially the cost of home building.

8. It provides for concealed, unchecked Federal expenditure in that a single administrator is authorized to put out from time to time Government-guaranteed obligations up to $2,000,000,000-not in the direct Government debt-without coming to Congress for appropriation.

9. It seems to me that it must be concluded by any reasonable person that no reasonable basis exists at the present time to involve the Government in such a scheme.

I will now undertake to discuss the foregoing objections one by one: As to Government housing: Members of this committee and of the Senate and the House of Representatives have repeatedly stated their opposition to all Government housing, or opposition to Government housing except for low-income families. It is clear that a majority of the American people are against Government housing. When the question has been voted on, as in California in 1947 and in New Jersey in 1949, it has in nearly every instance been defeated. The simplest form of Government housing is where Government builds, owns, and operates the housing. This scheme is worse, because (a) while the Government puts up all the money, its action is hidden first behind a local cooperative, and, second, behind a Federal bureau operating in there outside the direct Federal debt and free of appropriation control, (b) the middle-income, preferred, subsidized tenants get the housing free when the indirect Federal debt is paid, and (c) effective Federal control is preserved of site selection, plans and specifications, building construction, management, and rents.

Senator SPARKMAN. Would you mind, Mr. Russell, my interrupting with a question at that point?

You say this scheme is worse. You are referring to the amendments that we have under consideration?

Mr. RUSSELL. Yes; I am.

Senator SPARKMAN. I see. You say that the Government puts up all of the money?

Mr. RUSSELL. Yes.

Senator SPARKMAN. You understand that that is true?

Mr. RUSSELL. The bill provides that the loans are authorized for the full development cost which is all the land, all the improvements, even working capital is to be loaned to these co-ops.

Senator SPARKMAN. Just an advance loan; not to amount to more than 5 percent; isn't it?

Mr. RUSSELL. That is temporary, that is the initial loan which is paid back by the permanent finances, which permanent finances cover all the costs of the land, including the interest.

Senator SPARKMAN. You don't understand that the Government actually puts out that money; do you?

Mr. RUSSELL. Yes; I do, Senator.

Senator SPARKMAN. I don't believe you have read the bill.

Mr. RUSSELL. Yes; I have read the bill. The bill provides that the Government is to issue Government-guaranteed obligations which provides Government credit to get this money, and to get all of it.

Senator SPARKMAN. Is there any differential between the type of guaranty that the Government seeks to give to this kind of loan and that which it gives to the kind of loans which your organizations make every day in the world?

Mr. RUSSELL. Yes.

Senator SPARKMAN. In other words, the very organizations that you represent use Government-guaranteed loans or Governmentinsured loans, and basically, I see no difference between the two. Do you?

Mr. RUSSELL. Yes.

Senator SPARKMAN. What is it?

Mr. RUSSELL. In the case of the FHA loan, in which my client, the savings and loan people, have about 8 percent of their portfolio, there is a premium charged for those loans of one-half of 1 percent per annum; on a 10,000 loan it is about $500.

That goes into reserve funds which guarantee those loans.

Now, my clients have placed about 8 percent of their portfolio in that type of a Government-guaranteed loan, but they are paying in full for it. They don't like it very well; as illustrated by the fact that only about 8 percent of their portfolio is that type of Government loan. They do it because the Government has provided that agency and propagandized it so much that there is a demand for it, and they. have to make them.

Senator SPARKMAN. Do you mean to say that the savings and loan people don't like FHA?

Mr. RUSSELL. Yes; that is what I say; as illustrated by the fact that less than 10 percent of their loans are FHA loans.

Senator SPARKMAN. Well, your group represents about the only group of investment lenders who don't like FHA.

Mr. RUSSELL. Since 1934 when the FHA was established, the savings and loan business carried now about 10 or 20 billion of home loans; over a third of them, in the United States, have never had more than about 10 percent of their portfolio in FHA loans, and have those because they have to take what the Government drives down their throat.

I might point out also that my clients have made substantial partially guaranteed loans to veterans at 4 percent for mostly 20 years, some 25-mostly 15 years, I should say. Those are partially guaranteed by the Government. That is a veteran's aid.

Senator SPARKMAN. I recall that last year, however, whoever testified for your organization-I don't believe you appeared before us in connection with the legislation last year-but someone representing your organization assured us that even with the VA loans continuing at 4 percent and the FHA at 4.5, that you were going to continue to make a great bulk of veterans' loans.

Mr. RUSSELL. Yes; and 30,000 veterans' loans were made in November, which is the last VA report. The savings and loan people have

made a substantial percentage of those loans. They hold a total of more than $3,000,000,000 of veterans loans. But it is a preference for veterans, 4 percent rate; long-term. Government guaranty of half of it, or $4,000, whichever is less.

Senator SPARKMAN. Go ahead.

Mr. RUSSELL. A Socialist state is accomplished by government ownership, government control or complete regulation, or all three. It is a very old Socialist device to cover up the ultimate purpose in initiating Socialist undertakings of this character. It may be difficult for the average citizen to discover what is involved in this proposal, but I understand it and I am satisfied that a majority of the Members of Congress will understand it if adequate consideration is given to this measure.

As to a new bureau: The proposal creates National Mortgage Corporation for Housing Cooperatives as a Federal bureau, with a $15,000 Administrator who will have to have a new staff in Washington and in the field of hundreds and perhaps thousands to control from Washington in detail (a) the organization of cooperative or membership corporations, (b) the selection of home sites locally, (c) the development of plans and specifications for building, (d) all construction work, (e) supervision of operation and management, and (f) the financing of all of these. When the Housing and Home Finance Agency was created, over very strenuous objection from practically all of those concerned, it was solemnly promised on the floor of the Congress that it would result in economies and would not be enlarged or used to create new agencies. The enactment of this proposal alone will extend its activities about one-third, including some very effective local controls which are obnoxious, and an exemption of all of this financing from State and local taxation. There is just no reasonable basis for such a new Federal bureau to employ thousands of people to work in Washington and in local communities throughout the United States, unless it be to extend socialism to that extent.

Senator MAYBANK. I will ask the chairman to excuse me. I have to go to another hearing.

Senator SPARKMAN. All right, sir.

Proceed, Mr. Russell.

Mr. RUSSELL. As to Federal subsidy: The Federal subsidies involved are (a) appropriations for administrative expense, (b) appropriations for losses on $2,000,000,000 of 100-percent apartmenthouse financing where the money is loaned to cooperative or membership corporations, and (c) other Federal tax advantages and facilities such as free rent for such operations. In addition, there is a considerable state and local subsidy involved in the provision, which exempts this financing from State and local taxation. In addition also, such a large Federal agency will be able to induce local government to provide other substantial advantages at the expense of the local taxpayers, in the form of streets and public facilities, in order to get this 100-percent Federal money. The amount of the administration expense appropriations may be estimated from the appropriations over the years to Public Housing Administration and its predecessors, which are not reimbursed to the taxpayers, and authorizations to Federal Housing Administration to spend its own money, and Home Loan Bank Board

and its agencies to spend their own money or that assessed against. local institutions.

I think that there is no way to measure the losses which may be anticipated upon 100-percent apartment-house loans to cooperative or membership corporations. Consideration should be given to the fact that practically all of those who guaranteed 60-percent loans prior to the depression of the 1930's failed, and to the fact that the Federal Housing Administration has accumulated many millions of dollars in its housing insurance fund to protect its 80-percent apartment-house loans made to presumably responsible borrowers.

Furthermore, I submit that I have learned, and many Members of Congress have learned, that it is not good business to endorse other people's notes. The effect of this proposal, if enacted, is for the Members of Congress and the President to authorize the endorsement and guaranty, by the taxpayers of the United States, of $2,000,000,000 in notes. Many State constitutions prohibit the State from making such endorsement or guaranty. The Federal Constitution clearly does not contemplate such endorsement by the Federal Gov-. ernment for a function of this character.

Certainly the Members of Congress ought not to sign my name to these notes or obligate me thereupon. The other Federal subsidies involved are too intangible for discussion here, but will be substantial. State and local governments collect revenue in various forms from all other real-estate financing and the local subsidy involved in this financing will be very substantial.

As to loan terms, they are of 50 years, which may be extended to 60 years and further extended to 63 years, are uneconomic and unrealistic. Private lenders make such loans (up to a lower percentage of value) for 20 to 30 years and with FHA insurance up to 33 years. Even veterans' loans are limited to a maximum of 25 years. just not possible to determine the risk upon mortgage loans for such a long period of time because the purchasing power of money changes, neighborhoods change, depreciation is involved, and there are other factors.

It is

This is especially true in the case of 100 percent loans and much more so than in the case of 60 or 80 percent loans. The proposed interest rate is uneconomic and unrealistic. It is proposed to loan 100 percent mortgage money for the "cost of the money," which appears to be the average Government rate, currently 2.22 percent plus administrative expenses, a general reserve, and one-eighth of 1 percent special reserve. It appears that this will be from 2% to 3 percent. Farm credit has made nearly all its mortgage loans at 4 percent or more and the Government has had to subsidize the operation from tax money most years. Home Owners Loan Corporation collected 41⁄2 percent and is in the black. Private lenders on large loans realize about 4 percent plus incidental costs. The carrying charge of such financing will be about $3 per month per $1,000. This is to be compared to approximately $10 per month per $1,000, which I have paid and which members of this committee and the Congress have paid and the public has paid for most of our lifetimes on amortized mortgage credit. Home Owners' Laon Corporation amortization was approximately $8 per month. Currently most borrowers are paying about $8 per month per $1,000, but the best loan in the market is the 4-percent 25-year veterans guaranteed loan, which is $5.28 per $1,000 per month.

As to Government competition, in my opinion, the Government ought not to go into business. Especially it ought not to go into private business like home building and home financing, with subsidies from taxpayers' money, and undercut all competition so that no private citizen can compete with it. This proposal will serve an infinitesimal percentage of the families of the United States-about 200,000 out of 40,000,000-while they will have a preferred status at the expense of the others.

As to the effect on builders and lenders, private enterprise is building new homes at the rate of about 1,000,000 per annum and the housing market will shortly be saturated. The percentage of rental housing units produced is rapidly increasing and the prospect for rental housing has been bright. The so-called Housing Act of 1949, which was, in fact, a public housing act, will deter the building of several hundred thousands of private housing units during the next 5 years because of fear and inability to compete with Government, and this proposal if enacted, called a private housing proposal but in fact a Government housing proposal, will further deter private home building and especially the building of private rental units, because $10,000 units under this scheme can be rented for about $45 per month, whereas $10,000 units privately built and financed must be rented at $75 per month or more, to be carried. Private parties know that they cannot meet such competition and will in large measure be deterred from action.

As to the effect on the economy: The first effect of the enactment of this proposal is from the emission of $2,000,000,000 of Government guaranteed credit for 100 percent financing which is highly inflationary. The second effect upon the economy is a further pressure for higher home building costs, and this will be especially burdensome upon the small private builder because such large operations as the public housing program and this Government housing program have a very preferred position in the building materials and building labor markets, and the small builder will again find himself short of many items and labor on many occasions.

The third effect upon the economy of such a program is the deterrance to private enterprise indicated above. The fourth and final effect upon the economy is so dark that I hesitate to state it. But it is the same as the ultimate effect of progressive steps toward socialism in other fields of business. When the slightest economic disturbances arise, this subsidized Government housing can still rent for about $45 per month for $10,000 units, and therefore should be fully occupied, but tenants will move out of privately owned $10,000 units renting for $75 per month or more, and into these subsidized structures, throwing the entire burden of all vacancies on private landlords. It is well known that the ownership of real estate in depression periods in a free market is difficult enough. In the last depression private owners found themselves with more than 10 percent vacancies. In the next depression, and with public housing fully occupied at no cost except service cost, and this Government-subsidized housing fully occupied at about two-thirds of normal rents, private owners will find themselves with a still much greater vacancy, and our economy will suffer, indeed. Most Socialists think that such a condition will make it appear that we must then go all the way to a Socialist state.