The CHAIRMAN. What do you think of my antismoke provision in this bill?

Mr. MASON. I agree with you. I come from an area which burns coal, too. And we have a lot of cities in America where smoke is not a problem and we have many where it is.

The CHAIRMAN. I don't think you can clear up slums in many, many sections of our country until you eliminate the smoke.

Mr. MASON. And give the people a little fresh air to breath.
The CHAIRMAN. That is right.

We are thinking in terms of writing an amendment in this bill to start helping to eradicate smoke.

Mr. MASON. We will watch that amendment.

The CHAIRMAN. We want your support on it. I think it is just as important as many of these others. It doesn't do any good to go out and build a nice new suburb, all painted up, with beautiful roofs, and then 6 or 8 months later they are just as black as they can be as a result of smoke. That doesn't do any good. St. Louis has proven you can do a lot.

Mr. MASON. Pittsburgh has, too. Pittsburgh has done an outstanding job, as you know, in their Golden Triangle.

The CHAIRMAN. Thank you very much, Mr. Mason. You may want to come back later.

Mr. MASON. Thank you, sir.

The CHAIRMAN. Now, we have Mr. Reilly of the American Bankers Association.

STATEMENT OF JOHN A. REILLY, AMERICAN BANKERS

ASSOCIATION

Mr. REILLY. Mr. Chairman, and members of the committee, my name is John A. Reilly.

The CHAIRMAN. Mr. Reilly, do you want to read your statement? Mr. REILLY. I think we might save time if I read it, Mr. Chair

man.

The CHAIRMAN. Proceed in your own way, sir.

Mr. REILLY. My name is John A. Reilly. I am president of the Second National Bank of Washington, D. C. I am also a member of the committee on Federal legislation of the American Bankers Association and chairman of its subcommittee on mortgage financing and urban housing. It is in this capacity that I appear here today to express the views of the American Bankers Association on the proposed Housing Act of 1954, S. 2938.

In general we are in sympathy with the objectives set forth in the bill. It sets high goals for community betterment and improvement of home conditions in areas of need. It gives recognition to the value of the country's vast investment in existing homes and the need to preserve them. Consideration is given to the need for maintaining an adequate suply of new homes; to assisting all persons regardless of race, color, or creed to have equal opportunities for adequate housing; and to assisting low-income families in their housing problems. It recognizes the principle of flexible interest rates and fees and charges to assist in providing an adequate flow of mortgage credit. It provides a more efficient mortgage insurance program through simplifi- .

cation and elimination of unnecessary provisions in the National Housing Act.

Although recognizing the importance of the slum clearance and urban renewal program set forth in title IV of the bill and the changes in existing statutes proposed in subsequent titles in connection with the overall national housing policy, we are directing our testimony to the first three titles of the bill, all of which relate to mortgage credit.

We approve generally the changes in the National Housing Act in title I of the bill which are designed to streamline and simplify the mortgage insurance program, such as, (1) the transfer of section 8, title I, small home loans to and its integration with section 203 loans; (2) the equalization of terms of insured mortgages on existing homes with those on new homes; (3) increasing the maximum limits on amounts of FHA mortgages, among others. Our views on these changes will be discussed in more detail later on in this statement.

However, there are other provisions of the bill to which we are opposed. Some of the methods proposed for achieving the objectives mentioned above do not conform with our interpretation of the basic national housing policy as expressed in the President's housing message and in the Report of the President's Advisory Committee on Government Housing Policies and Programs.

The CHAIRMAN. Say that again?

Mr. REILLY. Some of the methods proposed for achieving the objectives mentioned above do not conform with our interpretation of the basic national housing policy as expressed in the President's housing message.

The CHAIRMAN. I see. I missed "our interpretation." I thought you were saying that the bill itself did not carry out the wishes of the President.

Mr. REILLY. In our interpretation, dealing principally with the loans. We will get to that later.

For example, instead of encouraging private enterprise to assume greater responsibility in meeting housing and home-financing needs without Government support or assistance, certain provisions of the bill involve the Government more deeply than ever in the housing and home-financing field. A housing emergency does not now exist. The great volume of mortgage credit which has been extended for home construction and the large number of new homes that have been built in recent years, all indicate that now is a time for Government participation in this field to be reduced rather than enlarged.

Savings funds are traditionally a primary sources of mortgage investment capital. In the years following World War II, savings have increased rapidly and financial institutions have invested these funds heavily in the mortgage market. In 1945 commercial banks had total savings and time deposits of $30,155 million and their real-estate loans totaled $4,772 million. By 1953 total savings and time deposits in the commercial banks had grown to $43,430 million and their realestate mortgages to a total of $17 billion. In 1945 mutual savings banks had total savings deposits of $15,385 million and total realestate loans of $4,279 million. By 1953 total savings deposits in the mutual savings banks had grown to $24,387 million and their realestate loans to a total of $12,799 million. Thus, the investment in real-estate mortgages by both commercial banks and mutual savings

banks during these years more than kept pace with the growth in their savings deposits. The same is true of savings and loan associations and insurance companies.

In view of the growing participation in the mortgage business by private lenders and the filling of the emergency demands for housing, the time has now come when it is appropriate for the Government to curtail its activities in the housing and home-financing field. If the theory is correct that Government assistance is sometimes needed to support the economy during a time of stringency, it certainly follows that the Government should withdraw its support when the need has been filled.

By the terms of the bill and as implied in the President's message, it is the intention of the Government to maintain and even raise the present level of home building and to assure the means of financing it. Caution should be exercised in this regard for it can result in developing a program of home building beyond that necessary to satisfy a real need for homes or of the available credit means from private enterprise sources to safely finance such programs. It is true that home construction requires the services of labor, absorbs materials, and supplies, and helps to create new markets for home furnishing, appliances, and conveniences. But it is not sound business to stimulate these processes beyond the ability of our economy to support.

FHA TITLE I LOANS-SECTION 101

The first proposal in title I of the bill relates to extending the amount and maturities of FHA title I loans for home modernization, repairs, and improvements. We see no objection to increasing the dollar amount of the home modernization credit limitation from $2,500 to $3,000 in class 1 (a) loans, but are opposed to increasing the maturity beyond the present 3 years and 32 days.

Expenditures for materials and supplies going into home repairs and improvements should generally be financed over a short period of time in the same manner that the purchase of other consumer durable goods are financed, for otherwise the whole credit base of the country is weakened. During recent years the banks have been making every effort to hold the line on maximum terms of consumer credit. If an expansion of terms of FHA title I loans is permitted it will inevitably bring pressure to bear for term expansion on other types of consumer credit loans, which we believe would not be sound for the consumer, the lender, or for the economy.

If the repairs, alterations, or improvements to the property are in the nature of long-term capital improvements, as distinguished from loans for ordinary wear and tear, longer term loans, in larger amounts may be justified, but they should be secured by mortgage.

With regard to class 1 (b) loans, it is our opinion that the present. $10,000 loan limit and maximum term of 7 years 32 days should continue unchanged for properties of 2- to 4-family units.

With regard to the rehabilitation of larger properties designed for more than 4-family units, we see no objection to raising the maximum amount to $10,000 per structure or $1,500 per unit, whichever is greater, and for a maximum term of 10 years provided security in the form of a real estate lien is required and that prior credit approval is obtained from FHA.

FHA SECTION 8-TITLE I LOANS-SECTION 103

We are in favor of transferring the program for insurance of loans to finance small-home construction from title I to title II of the National Housing Act. Title I is designed primarily for the insurance of unsecured consumer-credit loans. It is entirely proper that the small-home construction program of section 8, title I, should be transferred to and integrated into section 203 of title II, thus consolidating it into the general FHA mortgage-insurance program.

INCREASED LIMITS FOR FHA LOANS-SECTION 104

We support in general the restriction of credit to sound economic principles. Changing values in recent years, however, have occurred and we therefore recognize the desirability of increasing maximum limits on amounts for FHA loans on 1- to 4-family dwellings as provided by the bill.

EQUAL FHA INSURANCE ON NEW AND EXISTING HOMES-SECTION 104

Within reasonable limits there should be some equalization of FHA credit on new and existing homes. However, we endorse the thinking expressed by HHFA Administrator Cole:

The FHA should not permit a maturity in connection with an existing house which is higher than warranted by the physical condition and expected economic life of the particular house involved.

To assure this objective, we recommend that in no event should the loan on existing construction exceed 25 years.

THIRTY-YEAR MATURITIES ON FHA LOANS-SECTION 105

A primary reason for lengthening maturities on mortgages is to reduce the monthly payment. From the builder's or dealer's viewpoint this is very important, for it helps to sell houses. A 30-year $10,000 mortgage at 42 percent requires monthly payments of $50.75 to meet payments for interest and principal. The same loan for 25 years requires $55.60 a month, and for 20 years it requires $63.50 a month. A prospective buyer of real estate is naturally more easily attracted to the $50.70 payment, and it influences his decision as to the size of his investment and whether he would buy that house in lieu of another in which more conservative financing terms are required.

Actually, however, the longer maturity is not necessarily the best loan for the borrower. If a loan of $10,000 was repaid over a 20-year period instead of a 30-year period, the borrower would save 10 years of interest charges amounting to $3,056.40.

To foster sound credit and strength in our national economy, a 25-year mortgage for larger loans is enough. The property owner must have some equity in his property to make the credit economically sound. In this period of high production of homes and very high prices for real estate, it is not desirable to provide longer-term loans and ever more liberal terms.

TERMINATION OF FHA LOANS ON FARMS-SECTION 108

It is proposed to eliminate FHA insurance on farm-housing loans now provided by section 203 (d) of the National Housing Act. Commissioner Hollyday has stated that the reason for terminating this provision is because it has been practically inoperative in the past. In view of the stated reason, we see no objection to terminating this provision. We believe, however, that farmers should have equal opportunity with all others for proper home financing.

TECHNICAL CHANGES

We concur in the provisions of the Housing Act of 1954 relating to eliminating the need of a mortgagor to certify on refinancing a mortgage, the adjustment of fees in foreclosure, the 10-year maturity provision for FHA debentures, and the annual insurance authorization for FHA, as provided by sections 107, 111, 112, and 121 respectively.

FHA LOANS ON RENTAL PROPERTY IN SLUM AREAS-SECTION 115

We favor extending authority of FHA to insure loans under section 207 of the National Housing Act on existing rental multifamily structures in community slum or blighted areas where part of the proceeds are used to repair or rehabilitate the property, as provided in this bill.

COOPERATIVE HOUSING SECTION 119

We see no objection to increasing the top limits of FHA insured loans on cooperative housing projects, as proposed by this section of the housing bill-providing, that these limits should not exceed those provided under the rental housing program, except insofar as they provide preference for veterans.

NEW FHA SECTIONS 220 AND 221-SECTION 123

While approving in principle the need and desirability of urban renewal programs, the use of FHA insurance for this purpose needs very careful consideration, and should be segregated to an individual insurance fund to support the entire risk. Insurance funds underwriting the risk on residential properties under other sections of the National Housing Act should not be commingled with slum clearance and welfare housing programs. These types of loans have unusual risk, and their terms and conditions should reflect it.

We are opposed to the provisions contained in the proposed new FHA section 221 for insured loans to low-income families for 40-year loans with little or no down payment.

The only possible attraction for a mortgage investor to this type of loan is the insurance protective feature which is not sound justification.

Mortgages should be made to stand or fall on their own merits with insurance only as a secondary factor. Forty-year loans, even with the opportunity to convert into debentures at the end of 20 years, would of necessity depend heavily on the insurance factor for their marketability, and are unsound in principle.