STATEMENT OF SENATOR JAVITS

VETERANS FACE HOUSING LOAN CRISIS

Mr. JAVITS. Mr. President, a serious crisis in housing for veterans exists. I have stacks of letters reading exactly like this:

"I am a veteran that served in the Army from 1943-46. After my discharge I completed college and started working in industry. At the present time I have saved sufficient money to make a downpayment on a house. However, I find that is is impossible to obtain a GI loan from any of the banks in this vicinity. I personally checked 12 banks and found them consistent in their refusal to accept a GI loan."

The opportunity for a VA-guaranteed mortgage loan is one of the great opportunities extended to our veterans. None of us I am sure would want to see one of the most valuable elements of the GI bill of rights wiped out by the inability of our system of government to meet its full intent. That this is, however, the case right now is shown by the fact that mortgage money on VA loans at 42 percent has practically dried up. With competition for available funds of banks, insurance companies and other lenders very great for industrial improvement, consumer credit and other prime loans, with FHA loans at 5 percent and other Government-insured loans like those for the building of new ships yielding better than 51⁄2 percent, not only are new loans hard to obtain but even existing house-purchase contracts cannot be closed. I am advised that in the Long Island area of New York alone: "Present mortgage commitments of local banking institutions amounting to well over $100 million must perforce be canceled if veterans are not allowed to compete realistically for mortgage funds. This means that less than one-half of the 20,000 projected units will be built on Long Island this year and the well-organized construction industry thrown into chaos."

As the money market has grown tighter, VA loan authorizations especially, and FHA loans, too, have taken a nosedive. Comparing January and February 1956 with January and February 1957, the percentage of the privately financed nonfarm housing starts financed by VA loans has gone down from about one-third to under one-sixth or by about 50 percent; while the number financed by FHA loans has also been cut 50 percent. Also, we have seen a catastrophic drop in the number of such housing starts from an average of about 75,000 in January and February 1956 to an average of 62,000 in January and February this year. on the February rate, aggregate housing starts for 1957 are at an 8-year low of 910,000 20 percent under the 1956 rate and falling. February did not show any increase, while February 1956 showed an increase over January 1956 of 8 percent.

Based

In my own State of New York, housing starts for 1956 were 21 percent under 1955, and are still falling.

Home construction accounts for about one-third of total construction, onethird more being in commercial construction, and the other one-third in public construction. But the housing one-third, automatically regulating, as it does, demands for autos, appliances, home furnishings, and many other items, is a key factor in the continuance of prosperous economic conditions.

The real and present danger to the whole economy of this dramatic diminution in the rate of housing construction-apparently heavily attributable to the collapse of the VA housing-loan program-is real, clear, and immediate.

It is our duty to waste no time about doing what we can to reverse the trend. The Subcommittee on Housing of the Banking and Currency Committee is holding hearings currently on this vexing subject. We are told that the way to deal with the situation is to raise the interest rate on VA loans from 4% to 5 percent, and that is, indeed, the principal recommendation of the administration. In addition, a reduction in downpayments on FHA-loan housing is also recommended. But the problem is that competition is for the supply of money, and if VA loans are going to be entered unaided in that race there is no assurance whatever that the veterans will come out all right. Indeed, the evidence is all the other way.

A report of the Housing Committee on Veterans' Affairs, dated January 15, 1957, commenting on the increase in interest rate on VA loans from 4 to 4 percent in 1953, states: "It is still questionable today that the increase in the interest rate from 4 to 41⁄2 percent created a greater participation in the program, because almost immediately after the increase the lenders introduced the discount practice on veterans' loans." The discount has in effect increased the interest rate on VA loans to 5 percent or more right now, for discounts vary in

the principal centers of the country on these VA loans between 5 and 8 points. For this purpose, I am submitting a chart from the magazine House and Home, of March 1957. A 4-point discount would yield a return approximately the equivalent of one-half percent interest rate.

The basic problem appears to be far more the inadequacy in the funds available for guaranteeing home loans rather than in the interest rate. Indeed, it should be our long-range interest, considering the productivity and security of a country and our determined fight against inflation to prevent interest rates from running

away.

Accordingly I urge upon my colleagues realistically meeting this emergency by increasing the funds available for VA-guaranteed home-loan mortgage lending. This can be done, first, by enactment of the Johnson bill of which I am a cosponsor which will provide $1,300,000,000-1 billion 300 million-of additional money for direct loans at the 42-percent rate, being 25 percent of the national service life insurance fund-the veterans' own reserves. Before an interest-rate increase can be justified, this must be tried. Second, legislation to allow certification of FHA and VA-guaranteed mortgages. This is analogous to participation in mutual-fund investment. Such certificates may be available readily for salewithout responsibilities of servicing to the private pension and retirement funds of the country with assets in excess of $20 billion which are growing at the rate of $4 billion a year. These are the reserves and trust funds of millions of American workers and should certainly be put to work in big part to meet a housing emergency involving millions of Americans, particularly veterans. Especially when such investments are perfectly safe in Government-guaranteed obligations and can earn more than is paid on stocks bought at current prices in which these funds are now so heavily invested.

The urgency is very great, frustration and dismay face millions of prospective homeowners, including veterans, and a grave threat is growing to our economic stability. Congress has it within its own power to act decisively to deal with the situation, directly to have a beneficent effect upon the whole economy and to stop the trend which could be disastrous and which is so clearly apparent today. I hope very much that the Senate committee in charge will act decisively and quickly, for time is very much of the essence.

Mr. President, I ask that the chart from the magazine House and Home be printed at this point in the Record.

There being no objection, the chart was ordered to be printed in the Record, as follows:

"MILWAUKEE FIRM TO INSURE MORTGAGES AT LESS THAN HALF FHA RATE "Best evidence yet that FHA is charging too much for its mortgage insurance came last month from Milwaukee.

"Mortgage Guaranty Insurance Corp., 704 West Wisconsin Avenue, announced plans to offer private mortgage insurance for less than half what FHA charges. "FHA collects a straight one-half of 1 percent per year on declining mortgages balances (and has piled up $313 million sec. 203 reserves in 22 years of doing so). The Milwaukee firm will charge one-half of 1 percent the first year, but only onefourth of 1 percent on the declining balance thereafter. Alternatively, and 25 percent cheaper still, it will offer a single premium to cover the first 10 years of a loan (almost the entire risky portion). Rates will range from 14 percent to 2 percent, depending on the length of amortization.

"The plan was still subject to approval by Wisconsin's State insurance department when this was written. But Milwaukee sources expected no opposition, Mortgage Guaranty having assured two apprehensive title companies that it did not plan to jump into the title business through the back door.

"Board chairman Max. H. Karl, who is a member of the Milwaukee law firm of Frank, Karl & Bessman, expects to expand the plan gradually from Wisconsin to other States. Ultimately, he hopes to operate in all States but New York, which has a law against private mortgage guaranty firms. Mortgage Guaranty has an authorized capitalization of $500,000. Karl says the minimum requirement of $250,000 has been raised.

"The company will insure first mortgages subject to these requirements and ceilings:

"Twenty-five thousand dollars loan up to 25 years.

"Must be amortized.

"One- to four-family nonfarm residential property, owner occupied. "Eighty percent of value as per appraisal acceptable to the company.

"Satisfactory credit report.

"Mortgage Guaranty's plan will contrast sharply with FHA's redtape and centralized (e. g., bureaucratic control). Items:

"1. There will be no interest limits.

"2. Credit reports will be farmed out-to rating firms acceptable to the insurer.

"3. A master insurance policy will eliminate need for the company to sign individual mortgage notes.

"4. If the mortgage on a property is foreclosed, Mortgage Guaranty will waive any claim against the borrower if the sale of the property brings less than the loan balance.

"City

30 year

Minimum down 25 year

*Mortgage market quotations (sale by originating mortgagee, who retains servicing) as reported to House and Home the week ending Feb. 8

Minimum down!

FHA 5s (sec. 203) (b)

VA 42s

25 year, 10 percent down

30 year, 2 percent down

25 year, 5 percent
down

25 year, 10 percent down or more

"NEW YORK WHOLESALE MORTGAGE MARKET

"Prices on the open wholesale market in New York City, for out-of-State loans, as reported the week ending February 8 by Thomas P. Coogan, president, Housing Securities, Inc.:

VA and FHA 41⁄2s (minimum down, 25 or 30 years):

Immediates__

Futures

NOTE. Prices are net to originating mortgage broker (not necessarily net to builder) and usually include concessions made by servicing agencies.

"FNMA PRICES, EFFECTIVE JAN. 30, 1957

"For immediate purchase. Subject to 1⁄2 point purchasing and marketing fee and 2 percent stock purchase. Mortgage ratios involve outstanding balance of loan to (1) purchase price (excluding closing costs) or (2) FHA or VA valuationwhichever is less. FHA prices cover secs. 203b, 203i, 222, and 213 individual mortgages:

NOTE. If remaining term of an FHA sec. 213 individual mortgage exceeds 30 years, the price shown is reduced by 2 percent for each 5-year period (or part thereof) above 30 years.

Senator DOUGLAS. The bell has rung for attendance on the floor We have three more witnesses, Mr. Hansen, the Administrator, and Mr. Smith and Mr. Barnard of the Farmers' Home Administration. I wonder if they would come forward and file a statement or make a very brief statement.

Mr. HANSEN. Mr. Chairman, may we just file a statement with you?

STATEMENT OF KERMIT H. HANSEN, ADMINISTRATOR; ACCOMPANIED BY HENRY C. SMITH, DEPUTY ADMINISTrator, and CHARLES C. BARNARD, DIRECTOR OF BUDGET AND STATISTICS DIVISION, FARMERS' HOME ADMINISTRATION, DEPARTMENT OF AGRICULTURE

Senator DOUGLAS. Off the record. (Discussion off the record.)

Senator DOUGLAS. The statute authorized $110 million a year for loans. You estimated that $50 million would be required. It does not now appear that more than about $24 million will be obligated.