Mr. GIESECKE. Yes, sir. The American Legion would like to see them all sold, either to the veterans individually, where possible, or to veterans' cooperatives, where not possible.

We realize that many of these projects are very, very large, and that some of them are located where it would not be feasible, in all instances, to do that; and if the preference to rental similar to that given in your public housing bill were to be incorporated, we believe this would fairly well fill the needs.

Mr. PATMAN. In some cases the adjacent facility, which was formerly a war facility, is very much in need of these houses to carry on its peacetime operations. I think that should be taken into consideration in giving these preferences.

Mr. GIESECKE. That is true. But you will find, Congressmen Patman, that in most instances the adjacent facilities which are still being operated now employ a very, very heavy majority of World War II veterans, and therefore the preference would fit right into the picture.

Mr. PATMAN. That is true.

Mr. BROWN. Most of these veterans have no place to go. They desire to purchase these houses, and I think they should have the preference to purchase them.

Mr. GIESECKE. The American Legion would support you in every way along that line, Mr. Brown.

We would like to see the veteran have first opportunity every time. In those instances where it is not possible, if the veteran is given preference from a rental standpoint, then our resolution will be reasonably well taken care of. But we agree with your sentiments and would like to see the veteran have the first opportunity to buy these units. We do realize that that is difficult of accomplishment in the larger projects.

The CHAIRMAN. The adjacent facilities, under present law, have priority, have they not?

Mr. PATMAN. If it is a war facility.

Mr. GIESECKE. I am not certain that that is correct, Congressman Patman and Chairman Spence.

The CHAIRMAN. You may proceed.

Mr. GIESECKE. Answering Congressman Brown just a little more, many of these projects are long row houses; and we realize there would be difficulties in selling one unit out of a long row-house group to an individual and for that reason we can see where probably, in some instances, if we can get rental preference our purpose would be served just as well.

Primarily, we are interested in getting the World War II veteran, the young man who hasn't accumulated savings, a place to live reasonably, comfortably at least.

Now, our other objection to the military wanting to retain these units for the military personnel is basically the fact that the Congress has stated, numerous times through the years, that eventually Lanham Act housing would be made available to veterans of World War II. I think that has been your policy.

Another thing is that you gentlemen and the Congress have recently passed a military housing bill which would take care of the needs of the military better than this provision would.

Mr. PATMAN. I do not believe the conference report on the military housing bill has passed. Has there been an objection, Mr. Chairman? The CHAIRMAN. There has been no objection to the bill, only to bringing up the conference report by unanimous consent.

Mr. GIESECKE. Going on with my statement, I will turn for a moment to title III, Cooperative Housing.

The American Legion has no specific mandate on the type of cooperative which this title proposes to set up, but we do think that we should make some comment on it.

The general intention of this title would appear to be based on the assumption that the amendments to the Federal Housing Act, section 207, as provided in title I of this bill, will not reach the lower third of. the middle-income group. This title III, by providing direct loans: at a lower rate of interest and allowing amortization over a longer period of years, proposes to solve that problem.

No one can be certain that title I will reach down as low as needed, and, should it prove that the title I amendments cannot bring housing costs to the point where all of those who are above the income bracket which makes them eligible for public housing, then certainly, if it is the intention of the Congress, through this bill to try to make it possible for everyone to be able to own a home, some plan must be presented.

So far, no other plan has been presented and presumably the provisions of title III must be the best answer which has been developed to date.

Certainly, the American Legion cannot say such a plan is not needed and cannot oppose its enactment should the members of this committee feel that its provisions would take care of one segment of the population not otherwise provided for.

Mr. Alessandroni will speak about title IV.

Mr. RAINS. Let me ask you something about title III.

As I understand it, the American Legion is neither for nor against it? Mr. GIESECKE. That is right. We state here that we are neither for nor against. If there is a need over and above what the amendment 207 provides, and if this committee feels there is such a need, then we will certainly not oppose it in any way. But we are not officially in a position to endorse it.

Mr. RAINS. Thank you.

Mr. GIESECKE. I will now turn to title V, Aid to Educational Institutions.

On this title the American Legion likewise has no specific mandate. It has, however, through the years been the policy of the American Legion to favor all those things which will make for better eduction of the youth of the country, and in these latter years particularly those things which will assist the schools of the Nation in taking care of the heavy load of additional students coming to those institutions through the GI bill.

It would appear to us that this bill would be particularly helpful to the junior colleges of the Nation, most of which have no provision for increasing the physical facilities as needed through this extra load of World War II students.

My personal comment is that I would believe that that would be. very helpful to our program of trying to educate the boys of World War II.

Mr. RAINS. It is also requested by a great many State universities, such as the University of Alabama and Alabama Polytechnic Institute. They have sent me letters strongly endorsing that feature of the bill.

Mr. GIESECKE. I think, Congressman Rains, but what it would be very helpful. I stress particularly the junior colleges because they have even less ability to help themselves than the universities have. Mr. RAINS. That is correct.

Mr. GIESECKE. Again, Mr. Chairman and members of the committee, please let me thank you for the courteous hearing which you are giving us today and for the patience and interest you have shown throughout this session in seeing that the American Legion and other veterans organizations had the opportunity of presenting their views on the various housing bills.

Mr. Alessandroni, who was chairman of the American Legion housing committee last year and who is one of its national vice commanders this year, will testify on title IV.

Mr. PATMAN. I believe he is here now, Mr. Giesecke.

Mr. GIESECKE. I am very happy to see that. Thank you, gentlemen, very much.

The CHAIRMAN. We are glad to have your views.

Mr. POSTON. Mr. Chairman, it gives me great pleasure to introduce to the committee Walter Alessandroni, national vice commander of the American Legion, from the State of Pennsylvania.

The CHAIRMAN. You may proceed as you please, Mr. Alessandroni. STATEMENT OF WALTER E. ALESSANDRONI, NATIONAL VICE COMMANDER, THE AMERICAN LEGION

Mr. ALESSANDRONI. Thank you, Mr. Chairman.

The American Legion appreciates the opportunity of testifying on H. R. 5631, introduced by Mr. Spence, because it gives legislative effect to several resolutions adopted by the 1948 national convention of the American Legion meeting at Miami, Fla.

The purposes of my discussion will be limited to title IV of the bill, entitled "Amendments to the Servicemen's Readjustment Act of 1944." The other provisions of this bill have been testified to by the chairman of the national housing committee of the American Legion, Mr. Bertram E. Giesecke.

As to the need for the proposed bill, when Congress established the GI loan program in 1944 it laid the ground work for a program which has proved to be the Government's most potent weapon in attacking the postwar housing problem of veterans. Today nearly 1,500,000 World War II veterans and their families-perhaps 5,000,000 persons-live in homes which they have purchased with the proceeds of a GI loan.

During the past year and a half, however, there have been a number of developments which have operated in combination to deny the liberal terms and low-cost benefits of the GI loan to an increasing number of veterans.

At the time when proposals for housing legislation are numbering in the hundreds, it is difficult to understand why so little attention is given to the one governmental program which has towered above all others in its contribution toward solving the housing problem of World War II veterans.

As to the accomplishments of the GI loan program, the 1,500,000 veteran families who have used their loan guaranty entitlement have accomplished a twofold purpose-they have solved their immediate shelter problem, and they have made the initial step toward ultimate home ownership. The social benefits implicit in the magnitude of this record are truly incalculable.

No less important is the fact that the GI loan has offered veterans home mortgage financing at lower cost and on more liberal terms than any other mortgage loan program in history.

Because of the guaranty protection extended to private lending institutions, veterans have been enabled to become home owners without having to accumulate the several thousands of dollars normally required as a down payment when a family buys a home. Under the GI bill, veterans have had to make only modest down payments and many of them with adequate incomes but negligible cash savings have bought homes with no down payments at all.

The other major advantage of GI financing is the very low interest rate. The maximum rate permissible-4 percent per annum-has given veterans financing at the very lowest cost available anywhere in the market.

There are in addition a number of other less-well-known advantages of the GI loan which, in the cumulative effect, are of great benefit to the veteran. Specifically:

(a) With a guaranteed loan the veteran is paid a gratuity by the Veterans' Administration equal to 4 percent of the amount guaranteed, which is credited to his loan account. The amount of the gratuity runs up to $160 in the case of loans guaranteed up to the maximum

amount.

(b) The veteran pays no insurance premium for his guaranteed loan.

(c) Loan premium or brokerage charges, common for other types of mortgage loans, are forbidden by regulations.

(d) The veteran may make prepayments at any time without penalty.

There is another aspect of the GI loan which enhances its value to the veteran. In the 4-percent loan the veteran has acquired an asset which, because of its lower cost relative to other mortgage loans, has an equity value which is worth money to him. If he should be compelled to sell his home, he has a bargaining advantage with prospective buyers, who will be willing to pay the veteran a higher price for the privilege of assuming the favorable terms of a GI 4-percent loan.

The "reasonable value" criterion is a further beneficial feature of great importance. During a time when home prices have often been set upon the basis of what the traffic will bear, the requirement that the purchase price of a home purchased with a GI loan cannot exceed its reasonable value has been a unique protection to veterans in a real estate seller's market. Although not a rigid control, it has exerted a constant deterrent force against the upward pressures on housing prices caused by the general postwar inflation and fed by excessive Government credit supports.

With respect to problems besetting the GI-loan program, the availability and the relative worth of the provisions of title II of the Servicemen's Readjustment Act designed to vest veterans with an effective preference in their acquisition of homes has been nullified by

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supplying the nonveteran virtually equal credit support through amendments to FHA laws. That this was not modified primarily to stimulate new production is evidenced by the added support those laws gave to nonveterans seeking to purchase existing homes in competition with veterans.

There are many proponents for an increase in the interest rates applicable to this program. The advocates for this increase insist that it will revitalize the GI loan program. We ask, "At what expense?" A dispassionate analysis of the present mortgage market shows no justification for a higher interest rate.

During 1947 and most of 1948 the heavy demands upon investment funds exerted an upward pressure upon the structure of interest rates. As a part of this movement, bond yields and mortgage interest rates rose noticeably. In that upward march the GI 4-percent loan began to lose investor appeal and, in view of the anticipation of lenders that the upward trend in interest rates would continue, veterans found it increasingly difficult to find lenders willing to make low-interest GI loans.

Another development which capped the trend and put the GI loan at a disadvantage was the liberalization by the Federal Housing Administration of title II valuations under the National Housing Act. This liberalization enabled lenders to shift into FHA-insured loans which carried 41⁄2 percent interest rate, although they cost the borrower 5 percent, because of the annual insurance premium of one-half of 1 percent. As a consequence of these various factors, the sanction of a higher rate of interest for the GI loan program-from 4 to 41⁄2 percent appeared in the spring and summer of 1948 to be a necessary step, in view of the existing economic setting, to assure the availability of title III mortgage credit to veterans.

But that setting has changed and the arguments for a higher rate are no longer applicable in the situation which now exists.

In the past few months there has been a fundamental shift in the mortgage situation. Demand and supply factors have both undergone changes which have reversed the influences affecting mortgage interest rates in general and the investment appeal of GI 4 percent loans in particular.

(a) The supply of funds in home-finance institutions has increased markedly. For many lenders the past few months have represented a period of peak inflow of new savings. This trend reflects the over-all upturn in consumer saving which became apparent in the latter part of 1948. The peak rate of new money overflow, plus the high volume of mortgage payments and prepayments, has accentuated the investment problem of lenders. The problem is simple-to find profitable mortgage investment outlets for their funds.

(b) At the same time the yields on investments alternative to mortgages have fallen sharply since the beginning of the year. A slumping demand for capital by private business has tended to raise the amount of funds seeking investments in Government and high-grade corporate securities. The effect has been higher bond prices and lower bond yields. Yields are now back to where they were in the fall of 1947 before the Federal Reserve Board lowered support prices in December of that year. Moreover, a recent statement of revised Federal Reserve policy should continue the downward trend in bond yields. Late in June the open market committee indicated that it would