field, that we have taken up the slack in New Jersey, and there hasn't been a single direct loan made in New Jersey because the Veterans' Administration, the Congressmen from our State, cleared with our State savings and loan organization and we took care of every loan, so there hasn't been a direct loan made, sir, so I would say the GI loan has been taken care of.

Senator LEHMAN. I take it you or your association has made a study of conditions that exist generally throughout the United States. Do you believe that the same plentiful supply or adequate supply of mortgage money existed in smaller communities? The reports we have had is that while mortgage money was available in the larger urban centers, it was not available in many of the smaller areas, the less populated areas, States like Alabama, Mississippi, Georgia, and out West.

Have you made any study of that?

Mr. MURPHY. I think there were dislocations, sir, yes, but we still feel that if the State commercial bank organizations, the savings and loan associations, and in the New England area, the savings banks and insurance companies, were to put it on a volunteer basis and clear it as we do with just one organization in New Jersey-our own little State association-that we could take care of those dislocations, sir. But the dislocations do exist in some of the hinterland, yes. In my old State of North Dakota, I know that is true.

Senator ROBERTSON. You say the reserves set up by FHA are far below the margin of safety which private investors feel necessary for their security. Are we dealing in big money, here?

Mr. MURPHY. We feel we are when we get to $10 billion sir.

Senator ROBERTSON. When we get to $10 billion, don't the VA loans already exceed $15 billion?

Mr. MURPHY. Yes. I am citing 1952 figures, sir; I am sorry.

Senator ROBERTSON. Don't the FHA loans already exceed $23 billion?

Mr. MURPHY. Yes.

Senator ROBERTSON. There is $38 billion.

What is your estimate of the average increase in the price of housing as compared to 10 years ago?

Mr. MURPHY. Well, that depends upon the area, sir, but certainly it is double and more in some parts of the country, sir.

Senator ROBERTSON. Suppose in the next few years, whether you call it a rolling adjustment or depression or whatnot, the average price should drop 20 percent. What would happen, then, to FHA?

Mr. MURPHY. I suppose we would have to include in that assumption how many homes they took back, sir, to determine the ultimate loss to them.

Senator ROBERTSON. Well, if the price dropped 20 percent, which is considerably below the amount that the Government had in there, is it reasonable to assume that their losses would exceed the reserve that they have set up to meet those losses?

Mr. MURPHY. Yes, if there were heavy repossessions, but it would be a question of whether the folks stopped making their payments and gave up the properties. The mere drop in the price of homes, sir, wouldn't necessarily indicate FHA would have a loss, unless I gave up my house or John Jones gave up his house.

Senator ROBERTSON. Of course, I hope we will never have another depression like the last one. I don't think it is really necessary to have it if we take the proper steps. It could be prevented. But you know what happened to homeowners in 1930, 1931, 1932, and 1933, until we set up the home owners loan bank.

Mr. MURPHY. Certainly one might stop and think about the fact that FHA has been operating in an ever-rising market for homes.

Senator ROBERTSON. What about 25 percent of them going into default, and so far in default that they couldn't pull out again, unless the Federal Government refinanced them? Isn't that possible? Mr. MURPHY. Yes.

Senator ROBERTSON. We are dealing, here, with the indirect obligation of the Government, totaling over $38 billion.

When a default occurs, I understand that the FHA will give a 10year debenture; is that correct?

Mr. MURPHY. Under this bill; yes, sir.

Senator ROBERTSON. And then if they repossess the house and foreclose the mortgage, the difference becomes an obligation on a Government bond, doesn't it?

Mr. MURPHY. That is right, sir.

Senator ROBERTSON. If the reserve of the FHA is exhausted then that becomes a charge against the funds of the Treasury. The general funds of the Treasury?

Mr. MURPHY. That would be correct. Even though we do not use FHA, except to 5 percent of our total lending, we recognize it as a permanent part of the mortgage structure, but we do want to see it put on a sound basis, sir, with adequate reserves.

Senator ROBERTSON. At one time, many FHA loans were on the basis of 80 percent, and then they moved up to 90 percent.

Mr. MURPHY. That is right.

Senator ROBERTSON. And this bill moves some of them

cent.

Mr. MURPHY. That is correct.

Senator ROBERTSON. And in slum clearance and redevelopment, up to 100 percent.

Mr. MURPHY. Plus some loan costs.

Senator ROBERTSON. And that is a tendency that you now warn us against in dealing with the indirect obligations of the Government that runs into the billions. It is a concealed subsidy, isn't it?

Mr. MURPHY. Yes, sir.

Senator ROBERTSON. Which, in the event of really hard times, could cost us some big money.

Mr. MURPHY. A tremendous amount.

Senator LEHMAN. May I make one observation on that? I don't know whether the reserves are adequate or not. They may seem pretty small, but I think as Mr. Murphy has said, the liability of the Government will depend on how many of these homes are repossessed, and there are two considerations that must be taken. The original figure on which the mortgage was based is now considerably lower. Another thing is, in many cases the owners of these homes have equities in them, which makes it less possible that they would give them up.

Mr. MURPHY. The larger the equity, the less chance there is for him to give up his home.

Senator ROBERTSON. Mr. McMurray calls my attention to the fact that when I use the figure of $23 billion-plus of FHA loans; that is the total. There have been some repayments in the amount of $10 billion, so the outstanding amount is now something over $15 billion. Mr. MURPHY. As of the end of 1953, sir. Our figures were at the end of 1952.

Senator ROBERTSON. Thank you very much.

(The following was received for the record:)

SUPPLEMENT TO STATEMENT OF M. K. M MURPHY, UNITED STATES SAVINGS AND LOAN LEAGUE

We further urge that S. 2938 be amended by the following three amendments: Page 105, line 18, after the semicolon, following the word “amended”, strike the remaining portion of subsection (b) and insert in lieu thereof "and section 5 of the National Housing Act, as amended, are hereby repealed."

Page 106, line 1, strike out paragraph (2).

Page 106, line 18, strike out subsection (f).

Our amendments strike out minor provisions of S. 2938 which have nothing to do with housing but deal with annual reports to the Congress by the Home Loan Bank Board and by the Federal Savings and Loan Insurance Corporation. Since Congress created these agencies 20 years ago the law has provided that each shall prepare and make an annual report to the Congress. Unless our suggested amendments are adopted, S. 2938 will abolish direct reports to the Congress by the Home Loan Bank Board and by the Federal Savings and Loan Insurance Corporation.

The President has stated that he intends submitting a housing reorganization plan to the Congress at this session. As it seems to us, until such reorganization plan is presented to and approved by the Congress there is no call for any change in the long-established and proper reporting procedures of these two agencies; nor should anything be done which might in any way diminish the status of these two vital instrumentalities to the over $27 billion savings and loan and cooperative bank business in this Nation.

The next witness is Mr. Ralph J. Perk, a member of the city council of Cleveland.

STATEMENT OF RALPH J. PERK, COUNCILMAN, CITY OF

CLEVELAND, OHIO

Mr. PERK. Mr. Chairman, my name is Ralph J. Perk and I am an elected councilman from the city of Cleveland, Ohio, representing some 40,000 people in the 13th ward of that city. May I thank you in the name of the people in the declining areas of our city for your invitation and the opportunity to appear before the committee.

I wish to speak particularly on neighborhood conservation and rehabilitation. My area is adjacent to Cleveland's large industrial valley. The homes in my ward vary in age from about 40 years to about 80 years in existence.

The area was developed and settled largely through the heavy influx of people from Czechoslovakia and Poland from the 1870's through to the First World War. They brought with them their ambitions and their culture. Their first order of business when arriving was to own their own home, raise a family, and provide better opportunities for their children.

This principle of living is passed on to each succeeding generation. The residents are not white-collar workers but have always been in the laboring class or semiskilled class which in either event places them in the lower income groups.

They have always taken great pride in their homes but the overwhelming problem of air pollution and stream pollution is beginning to take its toll among the residents and homeowners.

Some of the areas in my ward are beginning to decline. They are not slums, but could degenerate into slums if the process of declining continues. Many of our people are anxious to maintain their homes but are driven to move away due to the consequent decline of the neighborhood. Others do not have the cash to rehabilitate, and it is almost impossible to borrow the necessary funds to do the job. When prospective homeowners cannot afford the necessary downpayment for an existing house, that is where the absentee landlords move in and take their toll of the area.

Homeownship is conducive to rehabilitation and particularly to conservation. Your legislation goes a long way to correct this problem of downpayment and long-term loans for rehabilitation and we are wholeheartedly in favor of its passage.

Now, what have we done in some parts of Cleveland to combat the rush of urban blight in our existing neighborhoods that are not yet considered slums? I will speak only for my ward, but others have been doing likewise.

About a year ago the Catholic and Protestant pastors, together with the civic leaders of the area formed a committee for rehabilitation and conservation. I had the privilege to serve as chairman of that group.

We organized street clubs, social events, painting parties, and every known device was used to stimulate the residents into a do-it-yourself program of rehabilitation.

One of the painting parties was organized to paint the old wood structures of St. Wenceslas Catholic Church. Approximately 60 volunteers painted from sunup to sundown and finished 2 school buildings, the rectory, and the convent. Among the volunteers were three Protestant ministers from the area.

The enthusiasm after this was so great the members of the congregation agreed to sandblast the large stone and brick church building. The church stands on the very edge of the industrial valley and was black from the industrial nuisances, but it soon began to emerge as a white and red monument to a rehabilitation program in high gear.

However, much of the enthusiasm died when residents were unable to secure long-term loans to fit their budgets and when downpayments on existing structures were not conducive to the average income of the area, and when an overall program and plan of urban renewal was not available. Now the gleaming "new" church will be a monument to what could have been if we had been prepared with legislation such as we are discussing here today.

The new Federal legislation: 1. As I understand the proposed housing bill, it is a source of great hope and optimism for our people. The bill will (a) provide loan assistance to individuals for the repair and improvement of their own homes; (b) permit the purchase of older homes in areas such as ours, on the basis of FHA loans. The old requirement that FHA loans be limited to new houses added to the forces which are driving people from my ward and devaluating its residential status; (c) but most importantly the new bill brings into the field of Federal assistance one whole new concept of urban re

newal-a concept which reaches far beyond either the individual help of older FHA provisions or the slum clearance provisions of the Housing Act of 1949.

The new bill finally recognizes that the problem of urban renewal must be attacked on many fronts and that it is foolish to stand by and wait until the machinery has ground to a halt before doing anything about it.

Neighborhood rehabilitation is in a sense more vital than slum clearance for more people will benefit from it and larger slums can be prevented. The individual effort of citizens is not enough-though the people are willing and anxious to work at the problem as their past achievements show. Slum clearance is not enough since it leaves most people unaffected. What is needed is a coordinated urban renewal program embodying long-range city planning, slum clearance, and neighborhood rehabilitation.

2. The new act will make funds available to local agencies-in the case of Cleveland presumably the appropriate agency established by the city council-and will provide an incentive to local agencies to prepare the sort of overall renewal program which is needed. The bill will provide funds to permit the necessary staff work and research required to prepare a feasible and workable plan. The bill places the primary responsibility where it belongs-on the local level-and it places the primary job in the only place where it can be done effectively, and that is by private enterprise. The bill is exactly what Cleveland and my ward has needed and has needed badly, and I most earnestly recommend its adoption.

3. In the hope that the bill will ultimately be passed, and with the thought that even if it is not, Cleveland must take steps along the direction indicated by the bill, I, together with several of my colleagues, am introducing an ordinance before council as a substitute for one which we introduced about 2 months ago and before Congress received this Housing Act of 1954.

Our ordinance will recognize the separate importance of neighborhood rehabilitation, coordinate the city's planning commission with its urban redevelopment and new rehabilitation program, and prepare both a workable program and an urban renewal plan which will conform with the requirements of the new bill in order to qualify Cleveland for the Federal assistance offered by the new bill.

The city is anxious to go ahead, and further delay on the part of Congress in action on the new bill will serve only to impede progress on the local level since naturally the local agencies are hesitant to go ahead with programs which may not mesh with the Federal bill ultimately adopted.

Air pollution and stream pollution: 1. A point which I wish to make, and which in my judgment should probably be the most important part of any urban renewal or neighborhood rehabilitation plan, is the the critical importance of air and stream pollution control. I have previously described the location of my ward and have already given an example of our small scale neighborhood rehabilitation program of last year down to the painting party at St. Wenceslas and the sandblasting of the church.

Presently as a councilman, and previously as a civic leader in the area, I have constantly received phone calls at my home as early as