to provide a means for getting private investment in cooperative housing started, demonstrating by actual experience that loans to housing cooperatives can be a profitable source of business to private lenders.

Also, the loans authorized in this title of the bill would be made on the regular terms for FHA insured mortgages on cooperative housing. As these loans are seasoned and experience gained, there is every prospect that the Federal National Mortgage Association could sell them to private purchasers, as it now sells other FHA-insured mortgage loans. In such case, private investment would eventually supplant even the Government loans initially made for the purpose of stimulating cooperative housing.

Next, as to FNMA mortgage loans and purchases, and RFC loans, a very important factor in housing production is the Government's secondary market for insured or guaranteed residential mortgages. Many lending institutions have, in the last year or so, reached the point where such a large percentage of their assets is in the form of small home mortgages that they are hesitant to make additional housing loans at this time unless they are sure they would be able to dispose of some of their holdings. In many areas of the country, the private secondary market for such mortgages is limited, so there is an increased need for the secondary market facilities of the Government.

Because of this increased need, certain existing restrictions on the powers of the Federal National Mortgage Association to purchase Government-insured or guaranteed housing mortgages are causing growing difficulty. These restrictions provide, in effect, that all of the mortgages purchased by the association from one lender cannot exceed 50 percent of all mortgages made by the lender which are otherwise eligible for purchase by the Association.

This is especially restrictive in the case of a mortgage on a large-scale rental or cooperative housing project, because the size of any such mortgage purchased by the Association would have to be offset by a similarly large mortgage, or an equal amount of relatively small mortgages, eligible for sale to the Association but retained by the institution.

I do not believe that an outright repeal of the 50-percent limitation and other safeguards on the volume of housing mortgage purchases by the Government would be in the public interest. It would permit the sale of large quantities of old mortgages to the Government without any assurance that the proceeds would be reinvested in housing of the types most urgently needed, or in any type of housing construction.

However, I believe that it would be very desirable to modify this 50-percent limitation in order to channel available mortgage loan funds into the types of housing construction which are needed most. Title I of the bill would accomplish this purpose by providing that the 50-percent limitation on mortgage purchases shall not apply to insured mortgages on rental housing, housing cooperatives, or lower-cost housing built for owner occupancy or in large-scale projects, or to GI loans, not exceeding $10,000, for the purchase or construction of homes.

The needs are so great for this housing that all of the Government's financial aids must be concentrated in this field, which is also the

area with the most severe shortage of housing credit. I believe that this modification of the 50-percent limitation on mortgage purchases would be very effective in channeling credit to this urgently needed housing and would have an important bearing on the type of housing constructed.

In addition to liberalizing the mortgage-purchasing powers of the Federal National Mortgage Association, the bill would authorize the association to make real-estate loans on rental housing or housing of cooperatives where the loan is accepted for insurance or insured under the National Housing Act and private funds are not available on reasonable terms.

I have already discussed the need for this lending authority in connection with insured mortgages on cooperative housing, and indicated that the Federal National Mortgage Association previously had authority to originate insured loans on rental properties. In my opinion, this authority to make rental-housing loans, although not used to any considerable degree, served a useful and desirable purpose, and should be reinstated.

Recently enacted legislation increased the total authorization for the Federal National Mortgage Association by approximately $500,000,000 in order to permit its operations to continue on a temporary basis until the Congress could give further consideration to the amount of the authorization. The commitments of the association to purchase mortgages have been averaging well over $100,000,000 per month, and it is essential that the unused amount of the authorization be sufficient to permit builders and lenders to rely upon its continued availability in making plans for housing construction.

The knowledge that this secondary credit is available is also a very important factor in keeping the amount of applications for mortgage purchases at a minimum, in relation to the amount of mortgages retained by investors. This bill would provide an additional $500,000,000 increase in the authorization, which is necessary to accomplish these purposes until the next session of the Congress.

In addition to FNMA operations, the RFC is authorized under the Housing Act of 1948 to make loans to business enterprises to assist the production of prefabricated houses or housing components, or to assist large-scale modernized site construction. The maximum amount which can be used for this purpose is now limited to $50,000,000 outstanding at any one time.

Section 603 of the bill would increase this amount to $100,000,000 and provide that such limitation shall not apply to loans to the extent that RFC takes as security mortgages on erected houses manufactured with such financial assistance under the Housing Act of 1948.

These loans have been effective in overcoming actual production problems, but the development of industrialized housing is being held up by difficulties of marketing and distribution.

One of the major obstacles is caused by delays in obtaining consumer financing. Because of the nature of the production and distribution of prefabricated houses, any delay for an appreciable period of time at one stage of the distribution process affects other stages, which overcomes the advantages that might be derived from mass production.

Section 603 of the bill would make it possible for consumer credit to be made available promptly in connection with the RFC loans to manufacturers, and would, therefore, be of substantial assistance to the development of the industry. The increase in the present authorization provided in the bill would permit the RFC to continue its program of loans to these manufacturers.

Now, a word as to extension of title I insurance authorization for improvement loans. The present authorization under title I of the National Housing Act expires on September 1 of this year, having been extended to that date from July 1 by the Housing Act of 1949. This bill contains provisions to improve title I and extend its authorization until July 1, 1952. Under this authorization, a lending institution is insured against loss up to 10 percent of the net amount it advances on all eligible title I loans, which may be made for various types of repairs and improvements and for building certain low-cost structures. The class 3 loans for the construction of new homes would be excluded for this authorization, as I previously explained.

The preservation of our existing supply of sound and acceptable housing, the conversion of larger structures into a greater number of smaller dwellings, and the rehabilitation of substandard units are all important phases of meeting the over-all housing needs of the country. The title I insurance of financial institutions against loss on property improvement loans has made a substantial contribution toward meeting these housing needs by making credit available on reasonable terms to home owners for maintenance, improvement, and rehabilitation of their structures. Most of such loans are unsecured character loans having maturities up to about 3 years. Without this insurance system, many private lenders would be hesitant to make unsecured loans of this nature, and would seldom permit maturity periods in excess of 1 year.

That concludes my statement on the title I provisions of the act. Commissioner Richards, who, as you know, is responsible for the operation of the Federal Housing Administration, has a prepared statement which he can read, if you wish, or place in the record, although there are two or three parts of the act which I did not comment upon and which I suggest at least he might comment upon. Mr. TALLE. There is a question I would like to ask Mr. Foley, if this is a proper time to do it.

Mr. FOLEY. If you wish.

Mr. TALLE. Relating to page 10 of the bill

Mr. PATMAN. Have you finished, Mr. Foley?

Mr. FOLEY. I have finished reading mine. I suggested that Mr. Richards has an additional statement, and he covers 2 or 3 points in the bill which are not covered and I suggest he be permitted to read them.

The CHAIRMAN. Do you want to be interrogated now?

Mr. FOLEY. I think it perhaps would save time if we allowed Mr. Richards to finish his statement first.

The CHAIRMAN. Very well, we will have Mr. Richards read his statement now.

Mr. TALLE. May I ask Mr. Foley a couple of questions now, sir?
The CHAIRMAN. He is going to return for interrogation,
Mr. FOLEY. I will remain here, if you wish.

Mr. SMITH. I would like to know whether you recommended any of the loans made by the Reconstruction Finance Corporation to Lustron Corp.

Mr. FOLEY. It is not required that we make recommendation in connection with those loans, Congressman.

Mr. SMITH. Did you make any recommendations?

Mr. FOLEY. In the way of an official recommendation of the Housing Agency; no.

Mr. SMITH. Official or otherwise?

Mr. FOLEY. No.

Mr. SMITH. You made no official or unofficial recommendation? Mr. FOLEY. Well, it depends a good deal on what you mean by "unofficial recommendation." I have discussed various of their loans in my individual capacity. We have made no recommendations as such.

Mr. SMITH. Did you indicate in your discussion of this question, any sympathy for the making of those loans?

Mr. FOLEY. I am afraid I do not understand your question, Congressman.

Mr. SMITH. Were you sympathetic to the making of these loans in connection with your discussions on the subject?

Mr. FOLEY. Was I sympathetic to the making of loans for the assistance of prefabricated houses?

Mr. SMITH. To Lustron Corp.

The CHAIRMAN. Dr. Smith, if you want to investigate that, we will bring up the Reconstruction Finance Corporation and you may

do it then.

Mr. SMITH. This is rather important, Mr. Chairman.

Mr. FOLEY. I will say this in answer to the question: Although probably I cannot answer the specific questions that the Congressman would want to follow up with at this time, I would say simply that I am sympathetic to the justifiable use of public funds to assist in the development of the prefabrication industry.

Mr. SMITH. Mr. Foley, we are not talking in generalities. We are talking about the Lustron Corp. specifically. Do you assert to this committee that you have not at any time expressed sympathy, or made recommendations, to the Reconstruction Finance Corporation, or any other body, that Reconstruction Finance Corporation loans be made to Lustron Corp.?

Mr. FOLEY. I would not say "No" to the question stated as broadly as that, Congressman.

Mr. SMITH. That is all.

The CHAIRMAN. We will now have Mr. Richards proceed.

Mr. PATMAN. Mr. Chairman, if Mr. Richards could deal with those points not covered by Mr. Foley, I think it would be well to have him do that.

The CHAIRMAN. Well, he has a prepared statement. We will let him go ahead.

Mr. RAINS. Who is going to talk about disposal of war veterans' housing?

Mr. FOLEY. I will in my discussion of title II.

The CHAIRMAN. Very well.

You may proceed with your statement, Mr. Richards, and then both you and Mr. Foley may be interrogated.

STATEMENT OF FRANKLIN D. RICHARDS, COMMISSIONER, FEDERAL HOUSING ADMINISTRATION

Mr. RICHARDS. Mr. Chairman and members of the committee, I am Franklin D. Richards, Commissioner of the Federal Housing Administration. I am grateful for the opportunity to appear before this committee in order to present my comments on title I of H. R. 5631, entitled "Housing Amendments of 1949."

In my capacity as Commissioner of Federal Housing Administration, I assume the committee would like me to limit my remarks to the proposed amendments to the National Housing Act which affect the operations of the Federal Housing Administration. These remarks will be made in the order in which amendments to the National Housing Act are presented in the bill.

The amendments to section 2 of title I of the National Housing Act proposed in section 101 of this bill would (1) extend the period in which loans may be insured under title I from September 1, 1949, to June 1, 1952; (2) change the basis for determining the total insurance liability which may be outstanding at any one time under title I; and (3) provide a new mortgage insurance plan to further the construction of new small homes.

Extension of the authority of the Commissioner to insure loans under title I would permit the continuation of a home improvement program which has been responsible for the maintenance, repair and improvement of existing housing, and would assist in providing new homes for lower income families.

The second amendment proposed would substitute a ceiling of $1,250,000,000 on the aggregate amount of title I insured loans which may be outstanding at any one time instead of the present complicated method. The method proposed is similar to that in effect under title II.

The procedure now required by the act is one controlled by a system which offsets the amount of income from insurance premiums and other sources against the amount of claims paid in respect to all insurance granted under title I since 1934. It is quite evident that the present method, acceptable under a short term program, has become, over the long period of years in which many reserves have had to be established, a most complicated and confusing method.

The method proposed in this bill is simple, clear, and easily computed. We estimate on a monthly basis the amount of loans outstanding in the hands of insured institutions, and once each year we obtain a call report from each institution which is checked against our running estimates. As of May 31, 1949, the outstanding balance of loans in the hands of insured institutions was approximately $865,000,000.

By establishing an outstanding balance ceiling of $1,250,000,000 we believe that there is a sufficient margin to allow continuation of operations under this title, and to take care of the fluctuations in volume of loans insured that occur year by year.

The Commissioner, under section 8, would be authorized to insure home mortgages which he finds are "acceptable risks." In outlying nonfarm and rural areas, standards of location, site, neighborhood, and community facilities are quite different from those in urban areas and it is not practicable to obtain conformity for properties so located