OPEN-END MORTGAGE-SECTION 125

We are opposed in principle to the addition of open-end mortgage contracts for FHA loans. There may be situations where the funds are used for capital improvement purposes which would be helpful to a borrower, but the way is opened for use for consumer credit

purposes.

It is our belief that equities in real property should not be used as a means of extending the debt further, which delays true ownership of a home. An open-end mortgage arrangement, unless very carefully controlled, can serve as a means for keeping the homeowner constantly in debt.

TERMINATION OF CERTAIN FHA INSURANCE AUTHORITIES

SECTIONS 126-129

Simplifying the National Housing Act by terminating FHA title VI loans to finance fabricated housing; title VII yield insurance provisions; title VIII loans on military housing; and title IX defense Lousing loans, has our approval.

PRESIDENTIAL CONTROL OF INTEREST RATES AND MORTGAGE TERMS

TITLE II

Under the Housing Act of 1954 the President is given exceedingly wide latitude in the control of housing credit, which in turn can influence the volume of home construction if he determines it to be necessary. He can fix interest rates on FHA-insured and VAguaranteed loans, determine adjustments in fees and charges, and direct the extension of Government credit through the new mortgage marketing corporation.

To the extent that this authority provides a means for flexibility of interest rates on insured and guaranteed loans within specified limits, and provides for an adjustment of fees and charges in connection with originating and servicing of loans in small communities and remote areas, we approve and believe that many of the ills of the past would be corrected.

FEDERAL NATIONAL MORTGAGE ASSOCIATION-TITLE III

If interest rates were to be permitted to adjust to the supply-anddemand factors of a free market, there would be no need, in our opinion, for any form of Government-supported secondary market facility, as private financial institutions would meet all reasonable demands for home financing through an adequate flow of investment funds into mortgages.

The discretionary authority given the President to adjust interest rates and fees and charges, if exercised in a manner that recognizes area differentials, would stimulate the flow of funds to those areas where demand may exceed supply and thus make the continuance of the Federal National Mortgage Association unnecessary except for the purpose of liquidating its present mortgage portfolio in an orderly

manner.

We believe that at the present rates on FHA and VA mortgages, private investors will supply all funds needed to maintain a sound volume of home construction and that a Government-supported secondary market will tend to overstimulate building, leading to an overproduction of residential properties.

INDEPENDENT STATUS FOR FHA

We have long felt that a mutual mortgage insurance system such as the Federal Housing Adminstration should be an independent agency and not grouped with other agencies organized for different purposes, nor subject to policy control by a superior agency. It should be free to establish policies consistent with sound insurance practices. We urge Congress to give consideration to restoring the FHA to a completely independent status.

The CHAIRMAN. Any questions, Senator Payne?

Senator PAYNE. No.

The CHAIRMAN. I think you have made yourself clear.
Mr. REILLY. Thank you, sir.

The CHAIRMAN. You said what you liked and what you disliked.
We appreciate your testimony.

Mr. REILLY. We spent a whole week on it, Senator, in New York. The CHAIRMAN. I don't believe I have any questions. I believe your statement speaks for itself. It is clear. I think I understand the things you approve and those that you are opposed to.

Thank you very much. We may want you to come back a little later. Mr. REILLY. Thank you, sir.

The CHAIRMAN. Mr. Downer, of the Veterans of Foreign Wars. Mr. Downer, I see you have about a 4- or 5-page statement. sume you would like to read it.

I pre

STATEMENT OF ADIN M. DOWNER, ASSISTANT LEGISLATIVE OFFICER, VETERANS OF FOREIGN WARS OF THE UNITED STATES

Mr. DOWNER. With your permission, I think it would perhaps save a little time.

The CHAIRMAN. You just proceed in your own way, then.

Mr. DOWNER. If my voice should become weak, I think it is attributable to the fact that this is income-tax day.

The CHAIRMAN. I think that is right.

Mr. DOWNER. The Veterans of Foreign Wars of the United States is an organization composed of 14 million men who have served in the Armed Forces on foreign soil or hostile waters in time of war, or during a recognized campaign or expedition. As a veterans' organization, our interest in the legislation before you is confined to those provisions of the bill which relate to the home-loan program of the Veterans' Administration, and other housing preferences accorded veterans by existing law. I should like to briefly discuss these aspects of the bill, but first I should like to recall some of the circumstances that led to the establishment of a veterans' preference in housing.

During World War II, a critical shortage of housing developed throughout the entire country. At the end of the war it soon became

apparent that such housing as did exist was occupied by those who had not been in the service, and the large majority of home hunters were those who had been.

In addition was the fact that building costs had risen sharply, and the market value of existing housing had, in many instances, doubled or tripled since the beginning of the war. While this was going on, those in the Armed Forces were under strict military pay scales, while the civilian population enjoyed high wages and high profits. Thus, during a period of unprecedented prosperity, the ability of the veteran to compete in this scarce market had been reduced.

In recognition of these facts, the Congress very properly extended to veterans certain preferences to enable them to buy or build a home. These preferences have been of very great value to the veteran population, expedited the building of adequate housing for the Nation, and have substantially contributed to the general welfare.

Many veterans who have not yet found it advisable or possible to avail themselves of the preferences which Congress established are now in a position where the continuance of the program is necessary to enable them to acquire a home for themselves and their families. We hope the Congress will continue the traditional policy of veterans' preference.

We believe the veteran, by his wartime service, earned the right to the preference he has been accorded. Experience has proven the VA program to be sound and has shown that the delinquency rate is about one-half the rate that prevails in nonveteran loans. At the end of the 1953 fiscal year, the Loan Guaranty Division had guaranteed 3,271,450 home loans. They estimate a potential of 6 million borrowers from the present veteran population.

Since the program is limited in scope, and since the payment record is so good, we are unable to see where continuation of the program constitutes any danger to our economy. However, we believe Congress should consider very carefully before expanding the FHA program for the entire population on approximately the same liberal credit terms that apply to the VA program. We are apprehensive that such a vast program might possibly result in overbuilding to the point that it will ultimately collapse real-estate values.

In addition to these general observations, I should like to briefly discuss section 201, which would delegate to the President authority to establish maximum interest rates on FHA and VA mortgages at a level not exceeding the average market yield on Government bonds, plus 22 percent. The Veterans of Foreign Wars protested when the interest rate on VA loans was increased from 4 percent to 42 percent. This position was subsequently reaffirmed by a resolution of our last national encampment, held at Milwaukee, Wis., August 2-7, 1953. Section 201, while not directly establishing an increased rate, does authorize an additional increase and is contrary to the views of our organization. We can see some merit to the proposition that interest rates should be flexible so as to rise or decline in accordance with the many factors that influence the price and availability of money.

However, we prefer to have the Congress retain its authority to establish interest rates and feel confident that the Congress will promptly act if changed conditions require the adjustment of rates. If the Congress is to delegate authority as contemplated by section

201, it will establish in some person or group of persons an authority that will be a constant lure to investors who continually seek to increase the earnings of their invested capital.

It seems certain that a person or group of persons with such broad authority would be subjected to much more pressure by such forces than would the Congress of the United States. In addition is the fact that the Federal Reserve Board already has the authority and does fix the rate of yield on Government bonds by the simple expedient of buying and selling on the open market.

We hope Congress will not relinquish the authority it has over interest rates on Government-guaranteed mortgages. We also wish to suggest that the House Subcommittee on Veterans' Affairs is now conducting hearings in many areas of the United States, inquiring into the availability of mortgage money, discount practices, and interest rates. Since one committee of the Congress is conducting an investigation to develop facts so that we can properly legislate in this field, it seems legislation should be delayed until that report is available.

The importance of the VA program is indicated by the fact that the VA guaranteed approximately 319,000 home loans during fiscal 1953. The average amount of these loans was $9,480, and the average term was 20 years. The importance of the interest rate is indicated by the fact that an increase of three-fourths of 1 percent in the present rate, when applied to last year's average loan, would result in total increased payments of $932.83. An increase of three-fourths over the present rate would be authorized by section 201 on the basis of the average yield on Government bonds on February 1 of this year.

Title 8 of the bill would reduce the preferences accorded veterans under existing law in the purchase of housing built by the Government during World War II as a part of the war effort. This housing was nearly all built in the years 1940 to 1943, so that which is unsold has been retained by the Government for a period of 11 to 14 years.

Under existing regulations, the Administrator advertises, for a period of 30 days, an offer to sell at a fixed price to veterans under the preference provisions, and if, at the end of 30 days, no sale has been made, the property can then be offered to the public and sold on a bid basis. We see no reason why this 30-day delay occasioned by veterans' preference provisions should suddenly become so important in the sale of property which the Government has held for such a long period of time.

Nearly all of this housing that has been sold in the past has been purchased by veterans under the preference provisions, and we strongly urge the committee to continue the preferences as provided by existing law.

We appreciate very much the opportunity to appear before this committee and thank you for your kind attention to our views. The CHAIRMAN. Senator Payne, any questions?

Senator PAYNE. No questions.

The CHAIRMAN. Give us a little more information on your last paragraph.

Mr. DowNER. That is housing, Mr. Chairman, that was built by the Government during World War II, principally to house military personnel. I think there are about from 40,000 to 50,000 units that come in that category. I think the Government has sold some 20,000 to

The CHAIRMAN. You are talking about the Lanham Act?

Mr. DOWNER. Yes, sir.

The CHAIRMAN. Your chief complaint is

Mr. DOWNER. That we would just like to leave the law as it is, Mr. Chairman.

The CHAIRMAN. It isn't continued in the bill?

Mr. DOWNER. Title 8 of the bill reduces the veterans' preference provisions. There are four specific categories under which veterans' preference would apply in the purchasing of this housing under the bill. I think the most important one is that it provides the veterans' preference will not apply to any housing that is removed from the location. The CHAIRMAN. I will tell you what we are going to do. We are going to introduce today-I think I will have it ready today, if not, tomorrow-a bill on this. What the Government does now is have someone go in and appraise these houses and offer them for sale to the occupants at that appraised price. If they don't sell them they advertise them for sale and sell them to the lowest bidder. We are going to put a stop to that. We are going to say that they can't sell them to advertisers at a lower price than offered to the existing occupants. What they do is sell a whole lot of houses or land to someone at a much lower price than they would get by offering them to the individuals. They create a slum area in the town or other things happen that are very, very undesirable.

I see no reason if there are 100,000 units, and they want $400,000, and they won't sell them to the tenants at less than $4,000 apiece, why they should be able to sell them to you or me at the rate of $2,000 each. Mr. DOWNER. Probably the occupant would have bought them at that price.

The CHAIRMAN. $2,000, yes. That has been going on, and I think we ought to put a stop to it. I think the legislation is about ready to be introduced, as a private bill, in order to get it handled real quickly, before this bill even gets through the Congress.

Do you get what I mean, Senator Payne and Senator Frear?

Senator FREAR. I am quite interested in this Lanham Housing Act. The CHAIRMAN. What they do is this: Here is a piece of property under the law, under the old Lanham Act. Here are 100 units in the city. There may be 200 or 300 or 500. And Congress directed them to dispose of them. So we said, "You must offer them to existing occupants before you can sell them to anyone else."

Senator FREAR. Yes, sir. But may I ask a question, Mr. Chairman: If you offer them to existing occupants, you must have some authority to maintain them, because of the lands under them. Isn't that subject to the ownership of the land?

The CHAIRMAN. It might vary. But, generally speaking, the Government owns the land.

Senator FREAR. But all Lanham housing is on Government-leased land; is it not?

The CHAIRMAN. In some instances.

Senator FREAR. I am very much interested in it, and I would hope that you would include in the proposal that you have just made, where the land is leased, that it could also have the same benefits.