We seriously question the wisdom of liberalizing the terms on loans on existing homes. This is a field in which most lending is now conducted without any liability to the Federal Government, and there should be a great deal of caution in unnecessarily involving Federal credit in this area. May we also point out that in the case of existing homes the long-term maturities and high loan-to-value ratios are of very questionable economic soundness. We doubt the advisability of 30-year maturities even in the case of new homes, much less existing homes, when consideration is given to the useful life of property, the fact that one-fifth of the American families move from one residence to another each year, changes in family size, and the probable earning capacity of the typical borrower.

During past consideration of the FHA program we have urged and hoped for some program, at least a gradual one, which would provide for some sharing of risk by lending institutions to the end that the Government's potential liability could be gradually reduced rather than constantly increased.

This bill actually increases the Government portion of the risk and decreases the lender's portion by liberalizing foreclosure allowances and by shortening the term of the Government guaranteed FHA debentures that are issued in payment of losses.

There are two new titles of FHA provided in the bill, known as sections 220 and 221. The new section 220 loans are really a relaxation of other FHA loan sections, and our position would be the same as already described.

The new section 221 provides for the 40-year, 100-percent loans to families displaced by slum clearance or urban renewal activities. Obviously the 40-year loan term is uneconomic and unrealistic and these loans will be made only with the most generous and costly support from the Government.

Much of this support is provided in the bill. We feel that such loans may be made. We do feel, however, that this section amounts to virtually direct lending by the Government, a principle which we have always opposed and which Congress has approved to date only in the case of veterans' loans in rural areas.

We studied the new section 221 quite sympathetically during the past months in the belief that it was to be offered as an alternative or substitute for the public-housing program. In spite of its many dangers it does have an advantage over public housing, in our opinion, in that public ownership of property is not involved and that there is some semblance of homeownership.

However, the program is not offered in the bill as a substitute for public housing, and we understand that the administration is asking for 35,000 public-housing units this year as contrasted to the 20,000 which the Congress approved last year.

Title II. Mortgage interest rate terms: Under this title the President could adjust the interest on FHA and GI loans within a range determined by the going rate on Government bonds. The need for some method of adjusting interest rates in keeping with general interest-rate patterns has been recognized for years as the only practical way in which to avoid recurring periods of feast and famine in the GI and FHA programs. We support this section except that we suggest that the decision on interest rates should be made by a specified

committee of informed Government officials, such as was recommended by the President's Housing Advisory Committee. Technically informed Government officials such as the heads of the VA, FHA, HLBB, Treasury, and the Federal Reserve are constantly in touch with money market conditions and are in the best position to make a proper decision on mortgage rates.

We approve the repeal of section 504 of the Housing Act of 1950 as is provided in this title. This provision has caused a great deal of confusion and unnecessary complication in the housing market and has resulted in regulations which discriminate against lenders who make loans, in favor of lenders who sell loans.

We believe that in any event the authority to adjust loan-to-value ratios and maturities should not apply to loans made under the Servicemen's Readjustment Act of 1944.

We regard that act as a contract by which the Congress sought to provide returning veterans with a method whereby they could buy homes within 10 years with the downpayment eliminated or substantially reduced. This is the basic feature of GI home loans, and we do not feel there is any warrant for breaking faith with the veteran. Title II. Federal National Mortgage Association: During the past year the United States Savings and Loan League has given a great deal of study and consideration to the secondary market problem. We have arrived at some rather definite conclusions as to the principles on which such secondary market facilities should be operated. We feel that these principles and objectives were well stated in the report of the Subcommittee on Housing Credit Facilities of the President's Housing Advisory Committee. The objectives are set forth on page 349 of the President's Housing Committee report as follows:

1. Such secondary market facility should be privately financed and should operate without expense to the Federal Government.

2. Its operations should be sufficiently sound from an economic point of view as to permit the sale of its obligations in the private market under favorable terms. Such debentures would not be guaranteed by the Federal Government. 3. It should take the form of a quasi-public corporation, operated under the direction and supervision of a board of directors, appointed by the President, and so constituted as to be in a position to prevent its being subject to pressures not consistent with its objectives.

4. With due recognition of the fact that substantial volume of funds for mortgage lending can be found only in long-term savings, it should be the primary objective of the corporation to facilitate the flow of mortgage funds to areas where needed.

5. To that end, and in order to prevent efforts to use its facilities to create a primary market instead of a secondary market, the corporation should purchase mortgages only on the basis of imposing an automatic deterrent on those using its facilities.

6. Mortgages should be purchased by the corporation with the objective of selling them to mortgage investors in other areas, and only those mortgages should be purchased which are believed by the management of the corporation to have marketability under normal conditions.

7. A reasonable financial participation should be required of the financial institutions that would use its facilities.

The proposed plan violates virtually all of these principles and we oppose it. We feel that the plan recommended by the President's Housing Committee would satisfactorily and properly meet the secondary market need, particularly if the flexible interest rate for FHA and GI loans becomes effective as provided in this bill.

If realistic interest rates are maintained on mortgages, the secondary market operation becomes essentially one of smoothing the flow of mortgage funds and redistributing them throughout the country, and that objective can be accomplished without Government funds or Government guaranty by the National Mortgage Marketing Corporation proposed by the President's Committee.

Title IV. Slum clearance and urban renewal: We commend the emphasis of this bill and the administration's program on urban renewal and slum clearance. We have long felt that the preservation, repair, rehabilitation, and improvement of existing housing was one of the most neglected phases of our national-housing program. In far too many of our cities and communities no hand has been turned to enforce housing safety and occupancy laws, and the entire reliance has been on the hope and expectation that the Federal Government should come to the community and solve the problem through the building of brandnew homes.

A few cities, such as Baltimore, have made a remarkable start in enforcing their housing laws and prohibiting the continuation and the renting of housing units which are clearly in violation of city laws and all standards of decency and safety.

We hope the committee will find a way in which to strengthen even further the requirements in this bill that communities undertake their full share of responsibility before requesting assistance from the Federal Government. Some constructive amendments have been offered by some of the previous witnesses who have been very active and experienced in rehabilitation work. One simple requirement would be that each community be required to show that all of its older housing had been inspected and notices of violations processed and enforced at least biannually. Most of our cities and States now have regular inspections of all automobiles and the safety and fireproof conditions of hotels and public buildings are checked several times a year. There is no reason why the safety of the occupants of a city's apartments and homes should not be of equal concern.

If a city is unwilling to spend a nominal sum such as $10, $15, or $25 to inspect a house, then the city has no right to expect the Federal Government to come in and spend $10,000 to build a house or to assume the liability on a $10,000 loan.

Title V. Public housing: We consider the technical amendments to the public-housing law satisfactory and a step in the right direction. Of course, we are unalterably opposed to any expansion of public housing and have so testified before this committee many times. Since the basic policy on public housing is not covered in this bill, I will not dwell on the point further.

Conclusion: We have frequently seen it said in the press, and even by witnesses before this committee, that the trouble with privateenterprise groups is that they oppose Government subsidies and support in general and then turn around and come to Congress for support and assistance in their particular field. I trust that the committee will note that in this testimony we have not asked for a dime of Government aid for the savings-and-loan business, nor supports or props of any kind. On the contrary, we have said in essence that this bill is unnecessarily generous and we ask the Congress not to provide these additional supports and this additional use of taxpayers'

funds in housing. We have asked the Congress to make the FHA and the secondary-market operations private enterprise in fact instead of in theory.

(The amendments submitted by the United States Savings and Loan League follow :)

AMENDMENTS RECOMMENDED BY THE UNITED STATES SAVINGS AND LOAN LEAGUE AS ADDITIONS TO TITLE VI OF S. 2938

AMENDMENT NO. 1

Subsection (c) of section 5 of Home Owners' Loan Act of 1933 as amended, is amended by striking out the following:

"Notwithstanding any other provision of this subsection except the area restriction such associations may invest their funds in loans insured under title I of the National Housing Act, as amended, loans guaranteed or insured as provided in the Servicemen's Readjustment Act of 1944, as amended (except business loans provided by section 503 thereof and not secured by a lien on real estate), or in other loans for property alteration, repair, or improvement: Provided, That no such loan shall be made in excess of $1,500 except in conformity to the other provisions of this subsection, and that the total amount of loans so made without regard to the other provisions of this subsection shall not, at any time, exceed 15 per centum of the association's assets."

and inserting in lieu thereof the following:

"Without regard to any other provision of this subsection except the area requirement such associations are authorized to invest a sum not in excess of 15 percent of the assets of such association in loans insured under title I of the National Housing Act, as amended, or as the same may be amended; in unsecured loans insured or guaranteed under the provisions of the Servicemen's Readjustment Act of 1944, as amended, or as the same may be amended; and in other loans for property alteration, repair, or improvement; Provided, That no such loan shall be made in excess of $3,000."

AMENDMENT NO. 2

Subsection (c) of section 5 of Home Owners' Loan Act of 1933, as amended, is amended by the addition of the following:

"Without regard to any other provision of law, such associations with general reserves, surplus and undivided profits equivalent to 5 per centum or more of their withdrawable accounts are authorized to invest a sum not exceeding 10 per centum of their withdrawable accounts in home sites and housing for sale or rental, including property acquired for the specific purpose of reconstructing, rehabilitating or rebuilding residential areas to meet the minimum standards of health and occupancy prescribed by appropriate local authorities and to make loans secured by first lien upon such properties to assist in the development thereof."

AMENDMENT NO. 3

Title IV of the National Housing Act, as amended, is hereby amended by striking out the words "Federal Savings and Loan Insurance Corporation" at each place the same appears therein, and inserting in lieu thereof the words "Federal Savings Insurance Corporation."

AMENDMENT NO. 4

Subsection (b) of section 403 of the National Housing Act as amended, is amended by striking out the following: "; will provide adequate reserves satisfactory to the Corporation, to be established in accordance with regulations made by the Corporation, before paying dividends to its insured members; but such regulations shall require the building up of reserves to 5 percent of all insured accounts within a reasonable period, not exceeding 20 years, and shall prohibit the payment of dividends from such reserves, or the payment of any dividends if any losses are chargeable to such reserves; Provided: That for any year dividends may be declared and paid when losses are chargeable to such reserves if the declaration of such dividend in such case is approved by the Corporation," and inserting a period and inserting in lieu thereof the following:

"Each insured institution shall allocate to reserves for losses at each dividend period a sum equivalent to at least 15 per centum of its net earnings for such period until its reserves for losses are equivalent to at least 10 per centum of all insured accounts and thereafter make such allocations to such reserves at any time its reserves for losses are less than a sum equivalent to 10 per centum of all insured accounts (but if at any time the amount in such reserves is in excess of the cumulative amount hereby required to be allocated to that time, then no allocation shall be required: Provided, That, if after the date of insurance of accounts, reserves for losses are less than 2 per centum in 5 years, 3 per centum in 10 years, 4 per centum in 15 years, or 5 per centum in 20 years, in either case such insured institution shall allocate to reserves for losses at each dividend period a sum equivalent to at least 25 per centum of its net earnings until its reserves for losses aggregate the amount above specified at the time specified and thereafter make the allocations first above required.

Senator ROBERTSON. Mr. Murphy, does the name Boiling Springs, of your association, indicate that you have so much money that it is boiling up and overflowing all the time?

Mr. MURPHY. We have always been in the mortgage market, but that is a name that goes back to the old days in our littlte old township. Senator ROBERTSON. Did you borrow that from Boiling Springs, Va., or do you actually have a spring up there that flows that way?

Mr. MURPHY. I am not old enough to go back to the great State of Virginia, but I know of no State we would rather borrow it from, sir.

Senator ROBERTSON. I wish to commend your reasons for saying that in your opinion this bill moves in the wrong direction with respect to the operations of FHA, that we should move, rather, in the direction of private enterprise.

I am going to ask our committee staff to bring that part of your testimony to the attention of FHA, and call on them either to agree withh the conclusions you reached, or analyze them and give their reasons for disagreeing. Personally, I think that you have touched

on a rather vital matter in this bill.

(The information referred to follows:)

MEMORANDUM FROM HOUSING AND HOME FINANCE AGENCY

In regard to the question raised as to the adequacy of FHA reserves, it should be noted that the ability of FHA to accumulate from one-half percent per annum premium charge sufficient resources to meet the potential losses of a real-estate depression is dependent upon five principal considerations:

(1) Efficient management of the programs so as to avoid both excessive administrative expenses on the one hand and insufficient underwriting examination and internal controls of operations on the other hand. This issue is dependent upon adequate budgets and sound administration.

(2) Assumption of appropriate insurance liabilities, i. e., those which reflect upon prior examination no greater risk than the premiums are designed to insure. For title I and title II programs these risks are reasonably predictable and subject to sound standards of risk analysis. For the emergency programs of titles VI, VIII, and IX, the extent of risk is so dependent on variable future conditions as to make the sufficiency of reserve resources more problematical. The relatively short periods during which insurance contracts are written under these emergency titles, however, sharply reduces the period of uncertainty concerning the adequacy of reserve resources, and the title VI program is already approaching a condition of relative safety in this regard.

(3) Efficient and economical management and disposal of FHA acquired properties: These properties constitute the primary resource of the FHA from which to pay claims for insurance on foreclosed mortgages. Timely disposal, efficient, and economical management would maintain the solvency of the respective insurance funds.

(4) Payment of claims with debentures: The use of debentures for payment of claims defers the timing of FHA requirements for cash for a sufficient time to