3. The recent staff report to the Subcommittee on Housing of the Committee on Banking and Currency, dated January 24, 1957, reports that mayors all over the United States advise them that a "serious housing shortage" exists in the Nation's cities. About 150 mayors responded to a ques

tionnaire from the Senate subcommittee.

ENCLOSURE C

[United States Department of Commerce, January 31, 1957]

CENSUS BUREAU REPORTS SLIGHT DROP IN AVAILABLE VACANCIES (Advance release of data to be presented in Housing and Construction Reports Series H-111, No. 7)

Quarterly results for the period October through December 1956 show a slight decline in the supply of available vacant dwellings units, the Bureau of the Census, United States Department of Commerce, reported today. The Census Bureau defines an available vacant dwelling unit as one intended for year-round occupancy, not dilapidated, and offered for rent or sale.

The available vacancy rate for the fourth quarter 1956 was 2.5 percent of all dwelling units in the United States, according to the results of a sample survey made by the Bureau of the Census. The "for rent" portion amounted to 2.1 percent and the "for sale" portion, 0.4 percent. In the previous quarter, July through September, the available rate was 2.8 percent-2.2 percent for rent and 0.6 percent for sale. The drop in the rate occurred in the territory outside standard metropolitan areas as well as within these centers; however, the rate continued somewhat higher outside than inside metropolitan territory.

By geographic region, there was significant variation in the available rates. They ranged from 1.6 percent in the Northeast to 3.2 and 3.3 percent respectively in the West and South. The variation was largely in the "for rent" group.

The median sale price asked for single-family nonfarm available vacant houses in the fourth quarter was $12,300, which was higher than the median of $10,800 during the fourth quarter 1955. For nonfarm available rental vacancies, the median monthly rent asked was $46, practically the same as the $48 median a year ago.

Senator SPARKMAN. Mr. Robert M. Morgan, vice president and treasurer of the Boston Five Cents Savings Bank, Boston, Mass., representing the National Association of Mutual Savings Banks. Come around, Mr. Morgan.

We have your statement, and we are glad to have you before us again, Mr. Morgan.

Mr. MORGAN. Thank you, sir.

Senator SPARKMAN. We have your statement. It will be printed in the record in full. You may read it or summarize it or discuss it any way you wish. Just proceed in your own way.

Mr. MORGAN. Thank you, Senator. I think I would like to use it as a guide and interpose some comments as I go along.

STATEMENT OF ROBERT M. MORGAN, MEMBER, COMMITTEE ON MORTGAGE INVESTMENTS, NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS, BOSTON, MASS.

Mr. MORGAN. Mr. Chairman and members of the committee, first of all, let me thank you for the opportunity of presenting my story in behalf of the group which I represent.

My name is Robert M. Morgan and I am vice president and treasurer of the Boston Five Cents Savings Bank, Boston, Mass. I appear before you today as a member of the committee on mortgage investments of the National Association of Mutual Savings Banks. You are, no doubt, familiar with the fact that our organization represents the mutual savings banks of the country and that these institutions are operated solely for the benefit of their depositors with all of their assets belonging to the depositors. There is no corporate shareholder interest.

Senator DOUGLAS. Mr. Chairman.

Senator SPARKMAN. Senator Douglas.
Senator DOUGLAS. Off the record.

(Discussion off the record.)

Mr. MORGAN. Senator, our bank was founded on the basis that we would accept an initial deposit of as little as 5 cents, and you will have a duly opened account for the nickel that you have given me.

But it is much easier to open this account for you for the 5 pennies that you have given me than it was for a friend of mine who dropped by the bank one day and said, "Daniel Morris, turn those 4 copper talents into 5, if you can."

Senator SPARKMAN. By the way, Mr. Morgan, I notice in some of the banks here in Washington there is a service charge. Unless you keep that account active, they charge a service charge against it. Unless Senator Douglas deposits something within a month, more than 5 cents will be charged against him, will it not?

Mr. MORGAN. Very fortunately, our type of institution has no service charge, Senator.

Senator DOUGLAS. I am now an investor in the mutual sayings bank system.

Mr. MORGAN. The mutual savings banks number 527, operate in 17 States, and are primarily located in the northeastern seaboard section. They have a total deposit liability of over $29 billion and assets of $33 billion. Traditionally, these banks have been known as depositories for small savers. The mortgage investments of the mutual savings banks amount to something over $19 billion, constitute 58% percent of their assets and consist of loans made in every State in the country, Puerto Rico, and Alaska. A substantial number of the savings banks lend mortgage money both in the national market through correspondents, and in their own local communities on a direct basis. They are thus in both the wholesale and the retail markets, as contrasted with many other mortgage lenders who are generally in one or the other, but not both. It is for this reason that we feel we are normally fairly sensitive to the changing conditions of the mortgage market.

First off, let me say that we are fully cognizant that the larger goals of national policy come first and that housing policy and legislation

under which it operates must set into the framework of the larger national picture. We feel and hope that such views and recommendations as we have, square with this principle and yet at the same time, are realistic.

Now a few words on direct lending by VA.

In the opinion of our association, the VA direct-loan program should be limited to those areas in which the responsible borrower, under normal conditions, is unable to get a mortgage loan, due to the unavailability of private long-term capital on either a local or secondary-market basis. Private lending institutions of the country can have no legitimate quarrel with Government direct lending, when the lending is thus restricted. There are obviously certain remote and sparsely settled areas, as well as many small towns, in which the demand for mortgage money exceeds the supply of such funds, whether they be local or imported. The program of a limited volume of rotating funds, as administered by the VA, has been helpful in this field. In the period during which the voluntary home mortgage credit program was permitted to operate on the basis on which it was conceived, it became abundantly clear that the total needs for direct lending could be held to a minimum workable figure and the amounts. appropriated for VA direct lending were more than adequate. That was in the early period of the VHMCP.

This recognition of a proper field for direct lending does not justify, in our opinion, the broader assumption that in a period of tight money, it is either necessary or desirable to revise the principles under which direct lending is conducted, for in such periods there is apt to be shortage of long-term mortgage capital in even the money centers themselves. And that has been the case.

May I say, parenthetically, in my own institution, for instance, I know, we have loans in 81 communities in Florida, 100 separate communities in North Carolina, and 104 communities in Texas. That is not just going to the big cities to make loans.

And I think, Senator, some of the earlier conversations I have had with you are part of the reason that we have broadened out.

Senator DOUGLAS. Did you do this before we had direct lending?
Mr. MORGAN. We did not.

Senator SPARKMAN. That is interesting.

Mr. MORGAN. By and large, we have tried to invest in the larger selected cities. So I think it is the closer study of the States involved and the areas involved that have gradually led us to realize that the corner drugstore owner is just as good a borrower, perhaps a better borrower, than the individual who has a part-time job in the factory in the big city.

Senator DOUGLAS. Then you would say that governmental action. has had a very beneficial influence on the policies of your company? Mr. MORGAN. I think the idea of spreading into small communities has been good.

Senator SPARKMAN. May I ask you, Mr. Morgan, did you go in as a part of this VHMCP, or was it your group that had organized some kind of a setup that you told us about here?

Mr. MORGAN. Right.

Senator SPARKMAN. A year or two ago.

Mr. MORGAN. Your memory is very good.

Senator SPARKMAN. You really preceded the VHMCP, did you not?

Mr. MORGAN. We started it, but we were not able to get people going until they realized that there was an obligation to do this, that we were not going to have direct lending everywhere. Of course, as you know, we had little or no direct lending in our New England territory.

Senator SPARKMAN. You realize, of course, that the direct lending program, from its inception, has followed very much the criteria that you laid down?

Mr. MORGAN. That is why I have given it due credit for what it has done, and I think it has done a good job.

Senator DOUGLAS. You, of course, remember the bitter opposition to direct lending by a great many of the banking interests, do you not? Mr. MORGAN. Senator, that is why, I am afraid, I am in the middle of the road on this picture and not on the extreme right.

Senator DOUGLAS. We are delighted to have a middle-of-the-road outlook.

Mr. MORGAN. At such times, the VA direct lending program with fixed low rates should not be placed in direct competition with private lending, else the private lenders be driven from the mortgage market. completely.

The VHMCP has made substantial progress in the past 2 years in reducing the number of areas in which mortgage capital was unavailable for FHA and VA loans. It has broadened the thinking and lending of private institutional investors beyond anything that can be compiled from the operating statistics of the VHMCP. It would be unfortunate, indeed, if at this time Congress were to encourage VA direct lending at the expense of the very substantial gain which has been made in the private field in this direction. Any large-scale replenishment of the VA direct loan funds would definitely have this effect. Looking to the long-term gain of spreading additional capital into remote areas and small towns, it would be highly desirable that the operation of VHMCP be encouraged, even if necessary at the expense of direct lending. We should add at this point that we are of the opinion that on the broad economic front in the present fight against inflation, direct lending should be subject to reasonably the same restrictions as other areas of the national economy.

Now I would like to say a few words about the use of national service life insurance reserves.

On May 17, 1956, a year ago, our association testified before this committee with reference to similar proposals as follows:

We agree with the President of Fannie May that the VA loan purchases under these provisions would be at prices higher than the applicable market prices and hence would seriously curtail the growth of the private secondary market in mortgages which is increasingly helpful in spreading mortgage funds throughout the country. This compulsory action would increase the national debt and would put the Secretary of the Treasury as trustee of the insurance fund in the equivocal position of investing these trust funds in assets for no other purpose except as an attempt to stabilize a VA mortgage discount market on a purely regional basis. Such action would not only be unwarranted, but might well be considered in violation of the trustee's duty to the policyholders.

The various proposals for the use of the national service life insurance reserves for the purchase of mortgages seems to be based on the assumption that these reserves exist in cash and are available for investment, whereas they have already been invested in Government securities and do not exist in cash. Any program for the use of these

reserves for mortgage purchases would obviously require the sale of existing Government securities and would thereby add pressure on available funds for private investment. We concur in the position taken by the Under Secretary of the Treasury, W. Randolph Burgess, when he appeared before the House Committee on Veterans' Affairs in February of this year and said that "we would be adding to the funds available for mortgages with one hand and taking away with the other."

Furthermore, we feel certain that the Congress would not knowingly direct the trustees of the national service life insurance fund to invest insurance premium money in mortgages at a fixed price substantially above the market, and we therefore recommend that the committee forego permitting access to the NSLI funds.

Senator SPARKMAN. Mr. Morgan, before you leave that, I would like to get your comment on this, and that is to the effect that the Treasury would be required to go into the market to raise funds in competition with the private market. As a matter of fact, if we pump money into Fannie May-and it is proposed to increase the purchase of stock by the Secretary of the Treasury by at least $100 million, and other recommendations have been even higher than that; several hundred million dollars-that will authorize Fannie May then to borrow a billion dollars.

Fannie May must go into the market and borrow that money. Is there any material difference?

Mr. MORGAN. Senator, I do not believe there is any material difference in the direct lending that takes place on a complete direct basis by the Government and that which takes place through another Government agency which is doing the same thing but one step removed, except for certain things that take place as the difference in that extra step.

Senator SPARKMAN. I am glad to hear you say that. I have felt for a long time that a lot of these objections of people who support the one and are opposed to the other, really are not substantiated by fact or by reason.

Mr. MORGAN. I would like at a later point to explain what I think is the difference, but I think your question bears directly on it. Senator SPARKMAN. I think it is largely a technical difference. Mr. MORGAN. Right.

Now, with respect to Fannie May, we fully recognize that Fannie May has been criticized, on the one hand by those who would like to have it used as a dumpting ground, and on the other hand by those who would like to see its activities further restricted and the agency ultimately liquidated. Our association has taken a middle-of-theroad point of view. It has been our feeling that in the present tight money period, during which the incidents of tight money have borne down more heavily on the mortgage section of the money market than on some other sections of the market, Fannie May has been a bulwark in cushioning what might have otherwise caused serious. trouble. It has provided a certain amount of liquidity in the housing mortgage market at a very critical time. We therefore have no objection to additional appropriations in various forms for Fannie May's activities in the purchase of FHA and VA home loans in the secondary market, under the procedure set forth in the Housing Act of 1954;