the 95 percent that investors would be very reluctant to purchase mortgages on property of this character with an owner's equity of only 5 percent. What is you experience with your GI loan? Mr. FOLEY. You mean the combination loan, going up to 100 percent Senator WHERRY. Yes. Mr. FOLEY. You have quite a different situation there, Senator. The experience has been good, but—— Senator WHERRY. Yes, but Mr. FOLEY. Just a moment before you take a wrong interpretation. Senator WHERRY. I do not want to take a wrong interpretation. Mr. FOLEY. You have two different types of loans in which this question of the ratio is involved. The whole philosophy under which the National Housing Act has been built up from the beginning has recognized a difference between the commercial sponsor and the individual home owner. The incentive, the whole purpose, is different. We have permitted always through the action of Congress the highest ratio loans through the most liberal insured financing to the individual home owner. There the incentive is greater, the opportunity is to do something different. Here you have a purely commercial enterprise with no such incentive and no proper comparison can be made on the basis of your suggestion. Senator WHERRY. But, Mr. Foley, your statement is that because the owner's equity is only 5 percent Mr. FOLEY. That is right. Senator WHERRY. Well, but regardless of the type loan or the different philosophy you might place behind it, your experience with the veterans on loans up to 100 percent has been very satisfactory. Mr. FOLEY. That is right, but, Senator Senator WHERRY. Just a moment, now. That is right, I agree with you. Now, then, if you have in this case military installations which now become guaranteed as permanent and have the added aid that you just mentioned, why would it not be an ideal type of loan? Mr. FOLEY. I do not think Senator WHERRY. Because you are assured permanent income. Mr. FOLEY. I do not think your question as finally stated is related to the previous discussion very closely. But again let me say that when a banker is concerned with the incentive, the amount of the equity investment is a part of the total consideration. Senator WHERRY. Yes. Mr. FOLEY. In the loan to the individual home owner to whom as high as 100 percent loans are made, he has all these added factors of incentive which I have recommended, which are absent in the commercial field. The CHAIRMAN. In other words, when that fellow pays $25 or $30 a month he is looking forward to the day when he does not have to pay it any more, and it is his home, and he is going to get the $25 or $30 if he has to work at night and all day long, because that is going to be his home. Mr. FOLEY. And it has already in it all of these attractions, incentives, and values for which he got it in the first place, whereas in this other proposition sometimes much of what the sponsor has at stake is deferred fees or profits even at 90 percent. He has not actual 10-percent cash investment in such cases. The less the equity the more the question finally is in case of trouble: Which is more profitable for me to do, in money, give it up or keep it? Senator WHERRY. May I ask another question? Are there any other loans outside the veterans where you guarantee up to 95 percent? Mr. FOLEY. Yes; we had enacted in the last session of Congresscalled 203D-authority to insure of 95 percent, 30-year loan on the small house for the individual owner, based on value. Senator WHERRY. How is that going along? Mr. FOLEY. It is coming along reasonably well. It is a direct application of the philosophy I just outlined for you. Senator CAIN. As a point of information, sir, if your conclusion is correct, an investor generally would not find 95-percent mortgages very attractive. Mr. FOLEY. In the large-scale rental projects, based on our past experience, no; I think not. Senator CAIN. Against that experience, is there a likelihood or a possibility that those mortgages could be turned over to FNMA? Mr. FOLEY. You have that-there are so many bills I have to stop and think Senator CAIN. I do not know. Mr. FOLEY. I think proposals contained in S. 712 would make it possible-let me ask our general counsel-presently they could not, but under S. 712 they could. This bill, too, would authorize such purchases. Senator CAIN. Just asking again for information, if S. 712 is: passed and would permit that, would that not insure a market for these 95-percent loans, Mr. Foley? Not that I yet agree or disagree on whether it ought to be 95 or 90, but if it is 95, would they be salable? Mr. FOLEY. It could have a tendency to reduce the reluctance of lenders. Senator WHERRY. May I just finish this? Of course that legislation is proposed in this bill itself, so that is an added feature. I agree with you that a person who has a title in a home probably has more inducement to pay than one who does not. I agree with you in that philosophy. On the other hand, is it not our job as a Congress to provide the very thing you do not now have, and that is to provide mortgage insurance for these men in the military who cannot own title to a home, that have to go where they send them? Well, I have a double-barreled question. Before I go on any further, would you agree with that? Mr. FOLEY. I am afraid I have lost both barrels of that question. Senator WHERRY. I will give it all over again. Is it not a respon- sibility that this Congress provide the mortgage insurance that you say you do not now have in the second paragraph of your letter, so that we can provide homes under new legislation that will take care of these men in uniform who have to go to these assigned places in the interest, of course, of national defense? Mr. FOLEY. The answer, of course, is "Yes." Apparently, Senator, we disagree on only one thing. You have asked my opinion as the Housing Administrator on the basis of our experience whether 95 or 90 percent will serve the purpose. Our best judgment is that you do not need to go to 95 percent and that 90 percent will do it. We believe enough builders will be willing to make the investment required. The decision finally is up to the Congress. Senator WHERRY. Mr. Foley, you do go beyond 95 percent, you say, in loans that have a different philosophy. That was my next question and final question, and that is this: When we made the loans to the veteran we did not figure about the philosophy. We said we would guarantee a veteran a hundred percent loan, and when we went to this 95 percent to these individuals we said "They are the people that ought to be helped, and therefore we are going to give them 95 percent." Now, on that basis are we not justified in adopting legislation that would do for this class of military men the things they cannot do for for themselves? Senator TOBEY. I want to ask a question. I came in late today, although I was here yesterday, but I want to know this: Is it not true that the builder's profits usually are estimated at about 10 percent on the job? Mr. FOLEY. That is right, sir, as a usual building practice. Senator TOBEY. So that when you guarantee 95 percent you are underwriting by the Government half of the profits, are you not? Mr. FOLEY. In some cases such as I previously referred to, assuming you could not figure exactly in advance, that could happen-it could work out in some cases that the Government might be insuring some of the profits. Senator TOBEY. In your judgment is this bill pro bono noncommissioned men or pro bono certain building interests in the country who look upon this as established profits backed by the Government? Mr. FOLEY. I would like to say in answer to that question, if you were not able to determine closely in advance what the costs would be and you put the ratio at 95 percent, you could be allowing the builder to take 5 percent of returns out of the mortgage rather than to wait for it to come out of the property. Senator TOBEY. You are opposed to 95 percent from your experience in housing? Mr. FOLEY. We think it is unnecessary to accomplish the purposes of this bill. Senator TOBEY. Well, when we underwrite this thing at 95 percent it is somewhat akin-we have been crying about socialistic tendencies in legislation for a long time; in my judgment it is unjustified, nevertheless we have-but certainly it is the reverse when you put in 95 percent guaranty here for a special group of people. I am interested in the people of the country, the little fellow. How much rent, in your judgment, how low a rental will noncommissioned men and enlisted men under this bill-what will be the rentals that will be allowed? Mr. FOLEY. It is very difficult to answer that. Senator TOBEY. What is your best guess? Mr. FOLEY. I would say it would be difficult to get down as low as some of the Senators seem sincerely to believe they can, $37.50, the shelter allowance in the three lower grades of technicians. I have suggested before you came in that probably a realistic approach would be to modernize the shelter allowance. Senator TOBEY. We only gave 90 percent mortgage insurance in Title VI of the Housing Act. Mr. FOLEY. It is more than has been proposed in any similar type of project in the past and more than- Senator TOBEY. Then why is it necessary? Mr. FOLEY. I do not find it necessary. I am arguing against it. Senator TOBEY. Another question. Do you believe that this bill will solve the housing problems of the average enlisted men and noncommissioned officers to any great extent? Mr. FOLEY. I do not know all the shelter allowances that there are, so I cannot answer exactly. I think perhaps I had better limit myself to what I have already said. I do not believe under present conditions, unless there are some special considerations in particular cases of possible low construction costs, that you will get generally down to take care of that $37.50 man. Senator TOBEY. Do you believe that rentals can be driven below, say $50 to $55 for the very smallest type of three-room units under this bill? Mr. FOLEY. I think probably in many areas of the country you could get that low. Senator TOBEY. Will they go below that? Mr. FOLEY. There is some advantage in the leasehold situation, which would probably-I am so unsure about this that I should not mention it--but there may be some situations, under some State laws, giving some advantages in real estate taxes, and so forth, that will help. Senator TOBEY. Mr. Chairman, I ask to be allowed to put in the record a schedule here of monthly percentage of distribution, number of rooms per dwelling, schedule of rents, compiled by the Federal Housing Administration. The CHAIRMAN. No objection. Senator TOBEY. Also a report on housing, which I issued some time ago as chairman of the Banking and Currency Committee, which bears on this subject. The CHAIRMAN. No objection. (The material referred to is as follows:) Size of dwelling unit by monthly rental: Based on FHA commitments to insure mortgages secured by rental housing projects, section 608 VEH, 1948 Source: Federal Housing Administration, Division of Research and Statistics, Operating Statistics Section. [S. Rept. No. 772, 80th Cong., 1st sess.] The Committee on Banking and Currency, to whom was referred S. 1770, a bill to amend the National Housing Act, as amended, having considered the same, report thereon with an amendment and recommend that the bill as amended do pass. GENERAL STATEMENT This bill will increase by $1,000,000,000 the authorization of the Federal Housing Administration to insure mortgages on new residential construction under title VI of the National Housing Act, as amended. At the end of the war, the title VI mortgage insurance authorization stood at $1,800,000,000. By Public Law 388, Seventy-ninth Congress, approved May 22, 1946, it was increased by $1,000,000,000 with authority vested in the President, and subsequently exercised by him, to increase it by an additional $1,000,000,000, bringing the total authorization to $3,800,000,000. Just prior to the recess of the Congress in August it appeared that, as a result of the steady increase in new home-construction starts and applications under title VI, the authorization might be exhausted early next year. By Public Law 366, Eightieth Congress, approved August 5, 1947, the authorization was increased by $200,000,000 with authority vested in the President, and subsequently exercised by him, to increase it by an additional $200,000,000, so that the authorization now stands at $4,200,000,000. However, the record volume of applications by the building industry and lending institutions for title VI insurance in financing new residential construction continued and accelerated, with the result that work now in process by the Federal Housing Administration will use up the remainder of the present $4,200,000,000 insurance authorization. It was therefore necessary for the Federal Housing Administration to discontinue receiving further applications for insurance under title VI. The importance of this form of assistance is evidenced by the fact that about 30 percent of new permanent private housing currently being placed under construction is being financed under title VI insurance commitments, which represent a most important source of production credit. Further, the mortgage-insurance facilities under title VI are especially important in the development of urgently needed rental housing. During the period from January 1947 through mid-November, insurance commitments issued or applications in process under title VI covered 150,700 units of rental housing, of which about 123,600 units and $935,000,000 were under section 608 (large-scale rental projects) and about 27,100 units and $150,000,000 was in 2-, 3-, and 4family structures under section 603. The additional authorization provided by the bill should be adequate to permit the continuation of operations under title VI until the date presently provided by law for the termination thereof, namely March 31, 1948. The committee also calls attention to fact that the increase of $1,000,000,000 in the title VI insurance authorization will undoubtedly make necessary an increase in the administrative expense funds available to the Federal Housing Administration in order to cover the net cost of processing the resulting additional business. The committee has been especially interested in two other matters bearing on the increase in the title VI insurance authorization. It has been indicated to members of the committee that, in some cases, the insurance granted under title VI has represented more than 90 percent of actual costs. The existence of such cases is not unexpected under a law which directs that the insurance granted thereunder be limited to 90 percent of the estimate of the necessary current cost of the property or project. While such a situation might possibly be overcome by requiring that the insurance be based on a percentage of actual cost, rather than an estimate of cost, there is no real indication that the number of cases in which the estimates greatly exceed actual cost are sufficient to justify the imposition of such a requirement with its attendant practical disadvantages. For example, the imposition of such a requirement would make impracticable the present system of firm commitments to builders under title VI. Since it would be impossible to determine actual cost until construction had been entirely completed, mortgagees would have no assurance as to the amount of the loan which the Federal Housing Commissioner 90348-49- -7 |