Home repair and modernization Mr. V. H. YINGLING, Clerk, Senate Banking and Currency Committee, Senate Office Building, Washington, D. C.: CHICAGO, ILL., May 20, 1955. Please insert this telegraphic statement in hearing. I file this on behalf of the Insulating Siding Industry, whose side wall materials annually build, beautify, and modernize approximately 500,000 American homes at a cost of $500 to $1,500 to the homeowner. Surveys indicate 60 percent of home modernization improvements are title I FHA financed and basic pattern for balance by private institutions is established by title I requirements. This industry sincerely urges continuation of FHA title I for not less than 5 years with provision for continued congressional checks on its operations. We further urge that the National Housing Act of 1954 be amended to eliminate 6 months' occupancy clause on new homes prior to eligibility for title I financed home improvements and to provide for $3,500 maximum title I loan insurance limit with 60 months to pay. We recommend minimum base of $500 which when apportioned over 60 months period permits low monthly payments more readily made by majority homeowners in low-medium income brackets. GLENVIEW, ILL. R. G. BREEDEN, Manager, Insulating Siding Association. NEW YORK, N. Y., May 19, 1955. Mr. JACK H. YINGLING, Senate Banking and Currency Committee, Please insert this telegraphic statement in the Subcommittee Banking and Currency hearings report. Combination windows and doors provide screen, insect, and health protection in summer months as well as insulation and fuel savings in winter months. Builders working to a price scale do not customarily include these products in new construction. The products are considered a necessary and essential part of all homes and should be available to new homeowners upon occupancy. We feel the 6 months occupancy provision in the interest of the public should be eliminated. H. R. GIBLIN, Executive Director, National Combination Storm Window and Door Institute, Inc. RICHMOND, VA., May 19, 1955. Senator JOHN SPARKMAN, Senate Banking Committee, Senate Office Building, Washington, D. C.: Legislation that would permit savings and loan associations to invest in acreage for improvement and sale to small builders for medium-priced home development would greatly aid the thousands of small builders who find it financially impossible to develop suburban tracts, and uneconomical to pay excessive present-day costs for vacant lots. B. O. WOODCOCK CONTRACTORS. STATEMENT SUBMITTED BY THE MUNICIPAL SECURITIES COMMITTEE OF THE INVESTMENT BANKERS ASSOCIAION OF AMERICA Re: S. 1524, S. 1744 and S. 1766 The Investment Bankers Association of America is a national voluntary asso-ciation of about 800 investment banking firms which are located in all parts of the United States. Many of these firms underwrite and deal in State and municipal bonds and in the aggregate do a large percentage of the underwriting, distribution, and trading of State and municipal bonds. In general, the attitude of the municipal securities committee of the Investment Bankers Association has been that the Federal Government should not take over functions of private industry when those functions can and are being performed adequately by private industry. S. 1524 S. 1524 would, as the "Public Facilities Loan Act of 1955," create a new corporation of the Federal Government (the "Public Facilities Credit Corporation”) and authorize that Corporation to purchase securities of, or make loans to, municipalities and other political subdivisions of States, public agencies, and instrumentalities of one or more municipalities or other political subdivisions of States, and public corporations, boards and commissions established under the laws of any State, to finance vitally needed public works or facilities if the financial assistance applied for is not otherwise available on reasonable terms. Under section 108 of the Reconstruction Finance Corporation Liquidation Act, presently in effect, the Housing and Home Finance Administrator is authorized to make loans to the same public bodies under the same terms and conditions that would be authorized by S. 1524. The authorization under section 108 does not expire until June 30, 1956. However, S. 1524 would make two major changes from section 108 of the R. F. C. Liquidation Act which we believe to be undesirable, unnecessary and contrary to the public interest: First, S. 1524 would create a new Federal corporation to be known as "Public Facilities Credit Corporation," with the Housing and Home Finance Administrator to serve as Administrator of that Corporation (at present section 108 of the RFC Liquidation Act is administered by the Housing and Home Finance Administrator). Secondly, S. 1524 would authorize the proposed new Federal corporation to have outstanding at any one time its notes, debentures, bonds or other obligations in an amount not exceeding $500 million and to have a capital stock of $100 million subscribed by the United States and subject to call for payment at any time. (At present sec. 108 authorizes a maximum of $50 million in a revolving fund for loans under that section.) The experience of the Housing and Home Finance Administrator shows beyond question that there is very little demand for a loan program for the purposes authorized under section 108 and under S. 1524. This is readily apparent from the fact that, although a $50 million revolving fund was authorized for such loans under section 108, only $2 million actually has been appropriated, and a statement in March of this year by officials of the Housing and Home Finance Administration to the Subcommittee on Independent Offices of the House Committee on Appropriations (hearings on independent offices appropriations for 1956, p. 1411) estimated that in 1955 only 12 loans aggregating $1,325,000 will be approved and in 1956 only three loans aggregating $500,000 will be approved. This would still leave $175,000 available in loans under the present appropriation and $48 million available under the present authorization. Mr. Hazeltine, Commissioner of Community Facilities, indicated that as of the date of his testimony they had received only four applications for loans (hearings on independent offices appropriations for 1956, p. 1411). Since the loan program under section 108 is presently being administered by an existing agency of the Federal Government and funds already authorized far exceed the demand for loans, the proposal in S. 1524, to set up a new Federal corporation to administer the program (with the obvious accompanying wasteful expense to the Federal Government for unnecessary personnel and facilities) and to increase the funds available for loans under the program, would clearly be undesirable, unnecessary and contrary to the public interest. Mr. Albert Cole, the Administrator of the Housing and Home Finance Agency, in his testimony before the subcommittee, specifically stated that "our Agency does not have information concerning the need for this financing which would warrant the enactment of S. 1524." and that the experience of this Agency administering various programs of assistance for non-Federal construction indicates that the basic problem of cities in financing public works do not generally arise from excessive interest rates or other unreasonable terms." The Commission on Organization of the executive branch of the Government in its report on lending agencies recommended, "That the authorization of the Housing and Home Finance Agency to lend money for public works except as they are necessary for public housing projects be repealed." Finally, and most important, the investment banking industry can supply and has been and is supplying billions of dollars of loans annually to public bodies, large and small-for the construction of public works and facilities at reasonable rates and terms. The lack of need for Federal assistance in supplying loans to public bodies for the construction of public works and facilities is apparent from the billions of dollars of loans which the investment banking industry has supplied to public bodies for the construction of public works and facilities and from the lack of demand for loans from the Federal Government under the program already authorized. Therefore, the adoption of S. 1524 is unnecessary and contrary to the public interest. Accordingly, we recommend that S. 1524 not be approved. S. 1744 Title IV of the Housing Act of 1940 authorizes the Administrator of the Housing and Home Finance Agency to grant loans to assist colleges in providing housing if they are unable to secure the necessary funds from other sources upon terms and conditions generally comparable to the terms and conditions applicable to loans under that title. The Administrator has determined that loans available from other sources at one-fourth percent above the rate at which loans are made by the Administrator are available upon terms and conditions generally comparable. Loans under that title must have a maturity not exceeding 40 years and bear interest at a rate determined under a formula by which the interest rate is presently fixed at 34 percent. Thus, the Administrator makes the loan at 34 percent if a loan is not available from other sources at 31⁄2 percent. S. 1744 would make several changes in title IV, but the principal changes would: (1) Expand the purposes for which loans may be made to include other educational facilities as well as housing, (2) limit the interest rate to be charged by the Treasury on notes of the Administrator to not more than the higher of 22 percent or the average annual interest rate on all interest-bearing obligations of the United States, adjusted annually to the nearest / percent, (3) increase the total authorization for loans under the program from $300 million to $500 million; and (4) increase the maximum term of loans by the Administrator from 40 to 50 years; fix the interest rate on loans by a new formula (not to exceed the higher of 24 or 14 percent above the rate paid on funds obtained from the Treasury) under which the interest rate under present circumstances could not exceed 24 percent; and eliminate authority of the Administrator to determine that loans are available from other sources upon comparable terms and conditions when such loans are available at a rate 4 percent above the rate charged by the Administrator, so that the Administrator would make the loan at 24 percent if loans were not available from other sources at that rate. At the outset, we direct the attention of the committee to the fact that the Commission on Organization of the Executive Branch of the Government in its report on lending agencies recommended, "That the program of loans for college housing be terminated." (1) The proposal to expand the college housing program to authorize loans for other educational facilities obviously would go far beyond the area of housing and would in fact embody a general program of Federal aid to education at the college level. Conosequently, we urge that the inauguration of such a program by the Federal Government not be brought in the back door as part of a housing program but be considered separately by the appropriate committee as a Federal program for aid to education. (2) The proposal to limit the interest rate charged by the Treasury on notes of the Administrator under a formula, which under present conditions would fix that rate at 22 percent, would compel the Treasury to provide funds to the Administrator at an interest rate lower than the Treasury itself has paid on some recent issues of United States bonds having a maturity shorter than the loans made to colleges with those funds. When the Treasury is compelled by statute to loan money at a lower rate than it pays to borrow that money, that is poor business and the taxpayers will have to pay the bill. We believe that this proposal would be unsound business and contrary to the public interest. (3) The proposal to increase the total authorization for loans from the present authorization of $300 million to $500 million appears unnecessary at the present time. The college housing program was established 5 years ago. Although $200 million of the authorization has been released for use, it is reported that as of December 31, 1954, a total of $124,445,000 in loans has been approved and $31,306,000 had been reserved, for a total of $155,751,000, leaving over $44 million released funds still available for loans and leaving over $144 million in authorized funds still available. It appears that adequate funds are available under the present authorization, unless the proposals (discussed below) to lower the interest rate are adopted, in which case the Federal Government will force private industry from the field of college housing financing and the Federal Government will have to assume the entire burden of such financing, which representatives of educational institutions have stated it is estimated at $6 billion. (4) The proposals, to extend the maturity of loans under the program to 50 years, to fix the interest rate on loans by a formula which under present conditions would fix the rate at 24 percent and to eliminate the authority of the Administrator to determine when loans from other sources are available at "comparable" terms and conditions, would simply force private industry out of most college housing financing and authorize the Federal Government to take over the financing of practically all college housing. Under the present law, private industry has been forced out of financing loans to colleges whose bonds are taxable because such bonds simply cannot be sold to private investors with an interest rate as low as the rate provided under the present law. Housing Administrator Albert Cole, in his testimony before the committee, pointed out that: "Incidentally, all issues sold privately to date were for tax-supported educational institutions, and in a number of cases only the first 20 or 30 year maturities of the serial issues extending to 40 years were privately financed, with the longer maturities going to the Government." Some of the bonds of tax-supported institutions have been taken by private investors because those bonds were tax exempt and the tax-exemption feature arouses investor interest at a lower interest rate. However, if the rate on loans by the Administrator is lowered still further to 24 percent, private investors will be forced almost completely out of the financing of college housing, including tax-exempt bonds, because private investors are not interested in most college housing bonds at that rate. These proposals embody the philosophy that private industry should step aside in this field of business and let the Federal Government take over if private industry cannot provide loans at an economically unrealistic and arbitrarily fixed interest rate. Interest rates on college housing loans, like other interest rates, cannot be fixed arbitrarily by private industry; interest rates on loans through private industry must be determined by many factors, including market conditions at the time of the loan, the interest rate on comparable loans and on obligations of the Federal Government and consideration of the risk involved in the individual loan in view of the particular college seeking funds. Loans for most college housing can be furnished by private industry at reasonable rates. There is no magic in the proposed 24 percent rate, and it appears that if private industry could provide loans for college housing at 24 percent proposals might then be advanced to authorize the Federal Government to make the loans at 24 percent if private industry could not provide them at that arbitrarily fixed rate. A formula to base an arbitrary rate on the cost of college housing and the rental which can be charged for such housing rests on a false base because it ignores non-rental funds available to meet charges, there is no established pattern in college housing and costs per unit vary widely, as also do rentals and nonrental funds available to meet charges. A basic fault in the proposals to lower the interest rate is apparent from the fact that the proposed 24 percent interest rate to be charged by the Federal Government would be lower than the 3 and 34 percent interest which the Federal Government has paid recently on some of its bonds. Thus, the Federal Government would be loaning money at a lower rate of interest than it pays to borrow money on loans of comparable maturity-without allowing for administrative expenses of the program and defaults on the loans which it makes. Any claim that the college housing program would be self-supporting would obviously be false and the taxpayers would have to pay for the program. Furthermore, Housing Administrator Cole, in his testimony before the committee, states: **** the present program is working satisfactorily, and I know of no need for additional legislation. With respect to the more liberal terms, it should be noted that existing law permits us to provide incentives for private financing which has resulted in substantial savings to the Federal Government. As I will explain, S. 1744 would stop most, if not all, of this private participation in the program. *** "The more liberal terms for the college loans and the elimination of private financing in the program would, of course, increase the expenditures for the program by the Federal Government." Since representatives of educational institutions have stated that college housing needs are estimated at $6 billion, the committee should consider whether the Federal Government is prepared to assume the financing of a program of that size, because the interest rate proposed in S. 1744 (24 percent) will in effect compel the Federal Government to provide practically all of such financing. Representatives of educational institutions have stated that the program was planned so that there would be no ultimate cost to the taxpayer, that it is not now desired that a Federal subsidy to higher education should be involved, and that the "sound principle" should be retained that no Federal loan should be made if private financing could be secured that would meet the need; these statements would certainly be contrary to the proposals embodied in S. 1744 which would, through the economically unsound and arbitrarily fixed interest rate, throw some of the cost of the program onto taxpayers, involve a Federal subsidy of colleges and provide Federal loans despite the availability of private financing at reasonable but slightly higher rates. It is not difficult to understand the enthusiastic support of educational institutions for the program embodied in S. 1744; however, we call to the attention of the committee the fact that most of the testimony in support of S. 1744 has simply concluded that substantial sums of money are necessary for college housing construction and that the lower interest rate provided by S. 1744 would facilitate such construction, but does not contend that the required college housing could not be privately financed at somewhat higher but reasonable rates. Private financing is available for college housing at reasonable rates somewhat higher than the arbitrarily fixed rate of 24 percent. Consequently, we urge that S. 1744 and the proposals embodied therein not be adopted. S. 1766 S. 1766 would extend the college housing program to junior colleges and to any "educational housing corporation." Junior colleges of the type described in the bill are already eligible for loans under the present program. Educational housing corporations would be organized to provide and operate housing for educational institutions which had not been authorized by state law to borrow funds, operate dormitories or issue bonds. No particular need for loans to such educational housing corporations has been demonstrated. Educational institutions which need housing facilities could in most cases borrow funds directly at more advantageous rates than could be obtained by an educational housing corporation formed to provide housing for such institutions. Therefore, such institutions should be encouraged to obtain the necessary authority under State laws to borrow funds, operate dormitories and issue bonds, rather than to encourage under the proposals of S. 1766 through the creation of educational housing corporations the avoidance of financial responsibility and the turning to the federal government for assistance. With such authority, these educational institutions would be eligible under the present program. Many colleges which presently can obtain loans for construction of housing at reasonable rates through private industry might turn to "educational housing corporations" to provide their housing so that they could avoid completely financial responsibility for such housing. It would be ill-advised to rush hastily into a program of federal loans to encourage the creations of such corporations. Consequently, we recommend that S. 1744 not be adopted. We appreciate the opportunity to submit these recommendations to the committee. |