Mr. HOPKINS. The present housing authority?
Mr. FISH. That is also under your supervision?

Mr. HOPKINS. I would not be prepared to answer that.

Mr. PRALL. May I ask Mr. Hopkins a question. On page 3, line 11, it is provided that the management of the Corporation shall be vested in a board of directors consisting of not less than 5 nor more than 7 persons to be selected by the President from among the officers and directors of any existing board, commission, corporation, independent establishment, or executive department of the United States. Would you not be eligible under that for appointment?

Mr. HOPKINS. Yes.

Mr. PRALL. So that you may take part in the administration of this act?

Mr. HOPKINS. I may.

Mr. FISH. If you are proposing that, I will second it.

Mr. PRALL. I would be glad to do that.

Mr. GOLDSBOROUGH. Are there any other questions? Mr. Hopkins, we are very much obliged to you for your statement. We will adjourn until 3 o'clock this afternoon.

(Thereupon, at 12:20, an adjournment was taken until 3 p.m., of the same day.)

AFTERNOON SESSION

The committee reconvened at 3 p.m., Hon. Henry B. Steagall, presiding.

The CHAIRMAN. Please come to order. Come around, Mr. Harriman, please.

STATEMENT OF HENRY I. HARRIMAN, PRESIDENT, CHAMBER OF COMMERCE OF THE UNITED STATES

Mr. HARRIMAN. Mr. Chairman and gentlemen of the committee, I am not here to discuss in great detail this bill. In fact, I am not familiar with all the features of the bill, but I have for many years believed that there was great need of a better method of financing home building, and today I believe that need is doubly necessary in that our industries are divided roughly into two classes, those of consumable goods and those of capital goods, permanent goods or construction. Normally, we have about 7,000,000 men employed in the construction industry, directly or indirectly. When the depression came, the consumable goods dropped off 10, 15, or 20 percent. The capital goods fell off in their employment and in their volume from 50 to 75 percent.

Now, we have had a reasonably good come-back in the consumablegoods industry. They are probably today running at about 90 percent of what we might say is normal capacity. But if you will leave out the Government work, the permanent-goods industry work, the construction industry has not materially come back.

There are three important fields in which it should come back. For the past 5 or 6 years we have very inadequately maintained our plants, particularly so in the last 4 years. And there is a very wide field there for the employment of labor in the rehabilitation of plants and bringing them back.

Then we see a great possibility of development in the highspeed, lightweight Diesel-engine train, which is today only an experiment but which I believe has more than a fair chance of being successful, and I look to a large field of endeavor in the construction of these high-speed, lightweight trains. I believe that we are going to see it an overnight journey from New York to Chicago or St. Louis; that we are going to see it, as was proved yesterday, about an overnight journey from Denver to Chicago, and that you will go from Chicago to the coast in 2 nights and 1 day.

But, by all odds, the largest field of endeavor for the construction industry, as I see it, is in the construction of homes. A survey made by the chamber of commerce showed that today we had a little over one room per capita, I think it was about. one room and twotenths, if I remember right, per capita. Certainly that is not a very large number of rooms. One and a half to one and threequarters is not a large number of rooms to have per capita.

Then we know that a great many of the so-called "homes" or "rooms" that we have are in desperate need of repair. Anybody who goes into the poor sections of New York, of Boston, or of any of our big cities, knows the great need there is for better housing.

When you consider that less than 60 percent, less than 50 percent, of the rooms of the country are today wired for electric lights, and less than 40 percent have complete bath rooms, you will see that we are not living in luxury today, and that there is a very substantial chance to do valuable work, not only in putting them to work but in the social benefits that will come, for our poor homes and our slums are breeders of vice and sickness; they add very substantially to the cost of our cities, the cost of education, the cost of prisons, and the cost of police protection and hospitalization. Therefore, it seems to me that this field is the great field in which there is an opportunity to put men to work with useful results. Now, it is true that in many, or in practically most of our cities, there are apartments to rent today, but they are usually because families have been compelled to double up. I believe there is a real scarcity of homes. It is nothing unusual, as you all know, to have two or three families doubled up in a house. That certainly is not going to be a permanent situation, and it is certainly not one that we should encourage.

The first suggestion that was made on this homing question was for the Government to make large expenditures. I am personally very strongly opposed to that. I think the time has come when we have got to use private capital and put private capital to work, and that that is the fundamental thing that we have got to do to bring us out of this depression. We have borrowed a great many billion dollars for P.W.A. and C.W.A. I am certainly not saying that that was not warranted, but I do say definitely that we cannot go on continuously in that way borrowing money, without inviting disaster, and that if we do not get men to work in the construction industry by the use of private capital, the situation is indeed

serious.

Now, there are a number of general points to which I would like to refer in this bill. I was one of the committee, not who drafted the details of the bill, but who considered the general plan, and the

first point is that it definitely is aimed at stimulating construction work, where there is today the recognized need of it rather than in the consumable goods. And, secondly, that in the renovizing of old homes and the construction of new homes we are not only giving employment, but we are doing the most useful type of construction work that it is possible for us to do.

I believe that homes are very much more valuable at this time than post offices, public buildings, and good roads, and dams, and other structures, because I believe they are fundamental to the wellbeing of the Nation.

In the third place, the bill aims to stimulate this home construction by the use of private capital rather than by any large use of Government capital.

In the fourth place, it emphasizes the value of the amortized mortgage. As I look back over the history of this depression, I believe that two factors were almost fundamental in bringing it on. The first was the speculative mania that we were in, and the second was that in all lines of endeavor we did not set up reserves to pay off our debts.

The customary way of handling mortgages was a 3-year or a 5-year mortgage, which was not paid down on any fixed and hard line. It has been one of the troubles with our railroads, one of the troubles with our utilities, that we created that and then said, "Thank God, that bill is paid ", and did not realize that the time was coming when we would have to meet that debt.

So in setting up a definite plan by which these mortgages would be paid off in from 17 to 20 years, the bill is, in my opinion, thoroughly sound. These houses should last a good deal longer than that period, and they should be free of debt long before they have ceased to be useful.

Finally, great care has got to be exercised in the type of construction and in the place where they are built.

There are cities where there is probability that no additional housing is needed. There are others where there is great need. There are cities where the industries are tending to move away or move out in the suburbs. It would be foolish to build houses within that central location, with the trend of business away from it.

But, in general, there is this need, and I believe that the bill sets up machinery which, if it is adequately administered, will tend to see that these homes are built in the right place.

So there is the principle of the amortized mortgage, there is the principle of putting men to work, there is the principle of putting them to work where they will be doing great good, if not the most good in home construction, and there is the idea of not piling up further Government debt but of doing it on a sound business basis through private capital.

Now, as I stated, I do not attempt to discuss the full details of the bill. I would just like to touch upon a few sections of the bill. Of course, there is first the creation of the Home Credit Insurance Corporation, and that corporation makes possible, by insurance, a possible $1,000,000,000 for repairs and maintenance and improvement of old homes, and an indefinite sum for the construction of new homes, and a sum up to $1,000,000,000 to take up insurance on existing homes.

I am perfectly well aware that if the bill is not carefully administered, this $1,000,000,000 that is for maintenance and upkeep might be spent for luxury or semiluxury on the houses. Every possible provision should be included in the bill to guard against that. I am not familiar with the exact language of the bill. There was a longer bill prepared, however, and then it was suggested that it be shortened. I personally think that the longer bill is the wiser bill. I think that many of the things which are left to the Home Owners' Loan Board should be spelled out definitely; that we should have definite reserves set up, as you do in an insurance company, to see that these mortgages are not overextended.

The $200,000,000 of capital is supposed to be a reserve against $1,000,000,000 of renovizing loans. There is the definite reserve.

If the loans are carefully made, the actuaries who went over this matter, feel that that 20 percent guarantee will never be called upon to anything like the full extent. Twenty percent would be $200,000,000. I asked Mr. Webster, who is sitting here and can tell you much more about the details of the bill than can I, what they thought the proper loss would be, and they thought it would be somewhere under 5 percent, which would be $50,000,000. But the thought was that there was a present contribution on the part of the Government of not exceeding $200,000,000 to stimulate a billion dollars' worth of work, with the probability that only a minor part of the $200,000,000 would actually be called upon for making good losses.

You will recall that the banks are not guaranteed 100 percent on these loans. If a bank has a total of $100,000 of loans, the guarantee of the Government is limited to $20,000, and they are assuming the risk of the remaining $80,000.

Of course, it is possible to find fault with the details of any measure, and I should expect that your committee would find improvements that could be made in the drafting of this bill. You have had wide experience in the home owners' loan bill and other bills which you have brought up, but I believe that it is proper for the Government to risk up to $200,000,000 to get $1,000,000,000 of work done.

If, of course, you do not make loans to the extent of a billion dollars, the possible risk of the Government is reduced in the same proportion.

Now, the second item is for the construction of new homes. There in the longer bill there was definitely spelled out what I think should be spelled out in any bill. It is proper that a loan be made up to not exceeding 80 percent of the appraised value of the new house. I have had a little difficulty in my own mind approving a figure as high as 80 percent. Of course, the endeavor is to supply the funds. which are required above what the man puts in himself, to eliminate the second mortgage, to consolidate the first and second mortgage, and that was why it was put as high as that. I myself would prefer a 75-percent limit. But you must remember that the plan calls for a 3-percent amortization each year, plus 1 percent as an insurance premium. That is a total of 4 per cent. Now, at the end of 5 years 15 percent of the mortgage will have automatically been paid off by the amortization fund. They are continuously going down.

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The bill further provides for classification of mortgages. Eightypercent mortgages might be in one class, 70 percent in another class, and 60 percent in another class, a person having his choice of which class he would enter. If he can raise the larger sum of money, say 30 or 40 percent, he naturally will enter the class where the risk of failure is less, where he will get back more of his insurance premium, for it is expected to pay a dividend out of these insurance premiums, and the dividend, of course, will depend upon the amount of the losses.

If there were no losses, then the whole mortgage would be paid off in 17 years. It will be somewhere between 17 and 20 years.

I think, however, that those things should be spelled out in the bill; that the reserve should be definitely set up.

There is another feature of this bill, and that is, that the Home Credit Insurance Corporation has the right to rediscount up to $1,000,000,000 the first class of mortgages, not the second class, the improvement mortgages. I have not been entirely sure in my own. mind that that was necessary, but those who have studied the situation very carefully say that as these mortgages cannot be rediscounted by the Federal Reserve banks, that there should be some means by which an ordinary bank can get this mortgage, put its funds to work, and then afterward, if there is stress or strain, it will not become a frozen asset but an asset which can be rediscounted. And that is the reason for that feature of the bill.

Finally, there is the provision for a billion dollars than can be loaned on existing mortgages up to 60 percent of the appraised value of the property. To distinguish that from the H.O.L.C. loans, you will remember that H.O.L.C. are only made on properties in distress. There are about two billions of mortgages which are falling due each year. Some of those are not in distress today. It may be impossible to find a suitable market, and that clause was put in for that reason. It is really an extension into a slightly different field of the function of the H.O.L.C. in taking care of maturing mortgages.

So much for part 1 of the bill.

Part two creates these national mortgage associations, with a capital of not less than $5,000,000, the thought being to take capital from sections where there is an abundance and loan that capital in sections where there is not an abundance. I am not very sure in my own mind that that provision is wise, at least without much more study than has been given it. I do not consider it an essential part of this bill. It may be that it can be modified, or it may be that it can be eliminated, but I certainly think that there should be some safeguards so that money will not be taken from one section and loaned in another, without an adequate knowledge of the nature of the security, because obviously people who live in the neighborhood are more familiar with the risk of the home or the farm than those who live at a distance.

Finally, there is the provision for the guaranty of savings and loan accounts up to $2,500. I think the thought back of it was that you have already guaranteed deposits in the banks up to $2,500, and you have not covered this form of deposit association. It would mean, of course, a thorough examination of these loan associations.