words, 1,350,000 families, representing more than 6,000,000 people, are receiving relief who are identified with the building trades of America. Now, there are a group of people in every city of America, skilled men, the finest workers in America, who are on the relief rolls in much larger numbers and percentages than are represented in any other single group in America. I know of no city in the United States-no city in the United States-where not less than one-third of the buildings trades workers are not now on the relief rolls, and a far larger number are still unemployed.

Now, a purpose of this bill, a fundamental purpose of this bill, is an effort to get these people back to work. Nobody is going to claim, I believe, who testifies before this committee, that this bill is going to put all of these men back to work, but I do not believe this bill ever would have been suggested (in fact, I know it would not have been suggested) did we not have the conviction that this would put substantial numbers of workers in the building trades back on pay rolls.

A second interest in this bill is the wholly social value of housing. There has been no repair work done on housing since 1929. Houses have deteriorated from coast to coast; roofs leak; inadequate furnaces; flooring. New houses, as you know, have not been built. I do not believe you will hear many people testify before you that we maintain that this bill will immediately start a lot of new building. We believe that it will start some-start as much as is desirable. We are convinced, however, that it will result, if passed, in an enormous amount of repair and modernization work in America. I would hate to indicate to you the precise figures as to how much of this work can be done; but, in my opinion, it will represent hundreds of millions of dollars in work and employment. Now anything that is done in this field particularly uses goods which are manufactured by the heavy industries, and while consumers' goods industries are employing 70 to 75 percent of this 1929 number of employees, this committee is well aware that that is not the case in the heavy industries. This bill is an effort to move the heavy industries. We believe that there is no opportunity to move heavy industries goods as usefully as in housing, because we believe housing is needed and repairs are needed-socially useful things that will be done.

And, finally, we believe it is essential that we unloose private credit rather than public funds in the repairing of those houses and the building of new houses; that, if we are going to get home with the return of the unemployed to employment, it can only be done, in our judgment, by the releasing of private credit through some appropriate channels and appropriate methods. We believe this will do it to a substantial extent. We believe it is important that it be done; that every possible effort be used to get the money out of the banks; because there are plenty of surpluses in the banks to be used for socially useful purposes that are directed to the heavy industries and to the employment of the building trades.

In general, that represents the fundamental objectives of this bill. The technical details of this bill will be discussed by those who will succeed me on the stand. Thank you very much.

The CHAIRMAN. We shall now be glad to hear Mr. Riefler.

STATEMENT OF WINFIELD W. RIFFLER, ECONOMIC ADVISER EXECUTIVE COUNCIL AND CHAIRMAN OF THE CENTRAL STATISTICAL BOARD

Mr. RIEFLER. My name is Winfield W. Riefler; I am economic adviser to the executive council and chairman of the Central Statistical Board. Prior to that, I was for 11 years with the Federal Reserve Board and am loaned by the Federal Reserve Board to the executive council for this work.

Mr. Hopkins has stated the problem as to the economic situation of these heavy industries that are stagnant. The light industries, the consumption-goods industries, are now coming back to life; employment there is pretty good. The problem of further development and recovery lies in the heavy industries.

Among the heavy industries we can look for a resumption now particularly in two fields. One is the enormous field of replacement demand that exists. Everybody practically has been conserving cash since 1929. I am talking about the replacement demand in terms of homes, in terms of factories, in terms of commercial factories all the way through. There is an enormous volume now needed, economically needed, of replacement demand. If we can get that employment started, that production going, it will generate of itself the other type of activity of heavy industries, new construction. First, I think new construction of homes which will be needed if we can get reemployment and then incomes reestablished; second, new construction of the productive type eventually. So this program is directed toward unlocking these economic keys. It is not a single program that is all at one moment; it is a developing one, and planned development,

We look for our maximum volume of reemployment from rehabilitation, repair, moderization, during the coming year. At the same time, the program looks toward unlocking the keys which have stopped practically all new residential construction, and permit that residential construction to go forward which is economically needed and desireable. If we are successful in that, the development of reemployment itself will spread the demand for new construction and we will have set in motion the forces that will carry this on.

So the program falls into four parts-really into three parts, three different types of influence, in order to use private capital, to use it to the utmost; because it is an extremely difficult problem. The building industry is one that is as decentralized as any industry we have. We need to create forces that will set it in motion everywhere. We plan to use all of the existing private agencies in the field; we plan to do it through three different types of insurance provisions.

The first one, which will be explained to you by Mr. Eccles and Mr. Deane, is insurance of the relatively short-time rehabilitation loans; that is, loans not to exceed 5 years, of small amounts, to be used just as widely as those who can economically afford to use them will participate. On that insurance plan, the Government carries the cost of the insurance. The funds are advanced privately, but the Government carries the cost of the insurance under this program.

The two other insurance plans are designed to be self-supporting.. One of them is the insurance of the best type of mortgage on new construction. By that plan, we hope to open the mortgage market, to unlock it to permit new construction of the best type to go forward where it is economically needed.

The third looks to the insurance of building and loan associations and is a set-up quite similar to the insurance of banks. It offers to protect that very important element in the mortgage market in the same way that we have protected banks and tried to rehabilitate them to take their part in the revival of the construction industry. Now, it is my task to outline very briefly the general nature of this insurance of individual mortgages, which is one feature of the program. Mr. Eccles and Mr. Deane will outline the insurance of the short-term rehabilitation loans, on which we hope to get our major activities this year, and Mr. Fahey will tell about the insurance of the building and loan associations.

What we propose in the market for individual mortgages is to offer to insure any lender, who is an accredited lender of good reputation, on first mortgages on owner-occupied homes. That is, if he will advance funds for the financing of owner-occupied construction, the Government will insure the mortgage for him. That insurance is self-paying; it is mutual insurance. The borrower will pay a premium for this insurance, which will be put into a separate fund and, after the mortgage has matured and that fund has borne the risks of the insurance, anything that is over is returned to the borrower to pay off the last part of his loan. So that that fund is selfsupporting.

The premium and the cost of the insurance is on a mutual basis. Any lender can use this insurance who is accredited, who can furnish proper service to the loan. But, to do it, he must offer a loan which meets the standard model provisions. Those provisions will be explained to you in greater detail later; but, in general, they are, first, that the loan must be amortized; that it must not be subject to renewal before it matures. In other words, it will be a self-liquidating loan. It will insist that the owner pay for his home out of his income. Second, the borrower must be of financial reputation standing and ability to be able to carry the loan charge. We do not want people buying houses that are more than they can afford to pay for. That would not be a sound resumption of the construction activity.

Third, the cost of the insurance, the rates, will be lower. It will be a competitive rate fixed in the market, but we will not insure any loan carrying more than 6 percent. In general, in those sections of the East where investment funds are in abundance and are looking for safe investment, we feel that the rate will be 5 percent when this type of security is offered to the investor.

As to the way the insurance will work out in general, it will be a very small fund to operate from a mechanical point of view, because it does not disturb the relations between borrower and lender that exist in the market today. If there are difficulties, however, the lender, to realize on his insurance, will have to turn the property over to the insurance corporation and will receive for his insurance not cash, but a debenture guaranteed by the Government, due three

years after his original loan would have matured, and carrying a rate of interest not in excess of 3 percent. That means we are not giving him 100 percent insurance, or offering him 100 percent insurance; we are offering to give enough insurance to encourage private capital to go forward and make these loans. It will not be insured completely against loss. If they make an unsound loan, a loan that gets by the standards, that is impossible, they will have to stand part of the loss.

Finally, because of the insurance feature, we feel it will be safe for the one lender to make the entire mortgage financing in one instrument, and we will be able to evade and avoid the dangers and risks of the second mortgage inarket. Typical in this country, home building has been financed with first mortgage and second mortg tgage. The first mortgage was one in which conservative investors put their funds; the second mortgage carried very high rates and attracted speculative risk funds. That system meant a plethora of secondmortgage money when conditions were good, and almost no secondmortgage money, or none at all, when conditions were reversed. So that at the present time, even where first mortgage money is available, which is not generally true, but is true in some cases, still home construction cannot be financed because of the absence of second-mortgage money.

We propose, therefore, that mortgages may be insured up to 80 percent of the appraised value, for mortgages on new construction. In that case, the scrutiny of the mortgage risk, from the point of view of the financial standing of the borrower, will be very strict. Of course, they must be amortized mortgages, so that they will soon be down much lower than that percentage of the appraised value. We also propose that these mortgages shall not be more than 20 years amortization. That ends the brief description of these insured mortgages.

We are proposing that same type of insurance of mortgages to be applied to mortgages on a type of housing project that is usually associated with slum clearance projects. That is, many of our States have now passed laws permitting large scale apartment construction for workers, at low rates, to go forward under strict State supervision, with certain exemptions of taxes and other types of exemptions. There is a clause in this that permits low-cost housing projects in general of that type, and also of private owners if they are genuinely low-cost, to offer mortgages for insurance under this plan, so that those projects will be able to raise their funds more cheaply in the general market, because they can offer for them insured mortgages.

Finally, to carry this insurance, to carry this opening up of the mortgage market to all sections of the country, and to have it unloosen the mortgage market, we propose to permit some of the best mortgages on existing properties to be insured under the same plan, same liabilities.

The limits in the bill on that proposition are, first, that the total that might be insured should not be in excess of 1 billion dollars; second, that the percent of appraisal permitted for mortgages on existing properties should not be in excess of 60 percent. By permitting some of the present mortgages to be insured, we will have

given liquidity to the mortgage market. Institutions which are frozen and cannot loan new funds unless they can dispose of their present mortgages will be able to take and insure them if they will recast the mortgage to meet certain provisions as to amortization and interest, and thereby put them in a position to sell them so that they can create a more liquid position of their portfolio and be in a position to loan again.

Second, we propose to authorize a Federal charter of a new type of mortgage-lending institution, national mortgage associations, which will be completely under Federal charter and supervisionsupervised at every point and examined by the Federal Home Loan Banking Board. These institutions would be permitted to raise their funds by selling their own bonds or debentures in the market, and we expect them to sell in the security markets where funds are most readily available and to form a type of investment by which trust funds and investment funds of that type could go into mortgages. We propose to control them at every point, however, and permit them to sell those debentures or bonds only against insured mortgages. There must be collateral dollar for dollar by insured mortgages of the model type which I have just described.

We expect those associations to carry the advantages of this insured mortgage to the sections of the country which are deficient in funds and where mortgage rates, therefore, are unduly high. In the country in general, you will find, in the more stable sections of the East where the population is not growing very rapidly, that the supply of savings is in excess of the sound demand for new construction, and it would be bad if we channeled all of those savings into local mortgage construction. It would have the effect of unduly inflating prices. There are other sections of the country, on the other hand, which are growing rapidly, where the demand for new construction is in excess of the local supply of savings, and most mortgage loans are made by local institutions. This results fre

quently in excessively high rates for mortgage loans. These mortgage associations, by being able to sell their debentures and bonds to institutions and others having investment funds in the more settled sections of the country where capital is in abundance, and using them to purchase, under rigid restrictions, approved insured mortgages in those sections of the country where mortgage funds are deficient, will be able to help bring down the mortgage rate and make the advantage of this proposal universally available. I think that is all.

STATEMENT OF MARRINER S. ECCLES, ASSISTANT TO THE SECRETARY OF THE TREASURY

Mr. ECCLES. My name is Marriner S. Eccles; I am Assistant to the Secretary of the Treasury.

I do not believe there is any doubt in the minds of most informed people but what we have adequate facilities for producing in this country most everything that everybody wants. It has been a question of the means of payment, known as money, being sufficiently adequate to provide the exchange necessary. I believe that we have