Senator SPARKMAN. Of course, I know that the program very largely died down during the last year or so, but is it taking on new life now? Mr. GRAVES. Yes indeed, sir.

Senator SPARKMAN. Money is becoming easier?

Mr. GRAVES. As the chairman knows, the VHMCP deals with mortgage problems in credit-short areas. We have helped over 31,000 families in credit-short areas over the hump to home ownership. I think it is significant that VHMCP has been of service primarily to families of modest means who buy low-priced homes.

In fact, 63 percent of the loans made through the program have been made to families earning $3,000 to $6,000 a year.

The program has made notable strides in obtaining financing for minorities. In fact, over 6,000 members of minority groups have secured close to $53 million in FHA and VA funds.

It is true that we have not placed many VA loans in the past 6 or 7 months because of the unattractive interest rate tied to a VA mortgage. At the present time we are placing close to 63 percent of the applications we receive.

Senator SPARKMAN. Just for the record, the program that you make reference to, correctly named the Voluntary Home Mortgage Credit Program, is one put on by mortgage companies, insurance companies, and home mortgage finance companies generally? Is that not correct? Mr. GRAVES. Yes, sir. The program is sponsored by private enterprise.

Senator SPARKMAN. By private enterprise. And it is wholly voluntary? Mr. GRAVES. Yes, sir. And our sole function is to put applicants in need of mortgage financing in touch with lenders who have funds available for FHA and GI loans.

Senator SPARKMAN. I have been greatly pleased with the work that you have done before this last year. I suppose the last year has been the hardest. I think you did a fine job in reaching out into these territories where mortgage funds were scarce. And I am very glad to hear you say that it is becoming quite active again.

Mr. GRAVES. Well, I think, Mr. Chairman, that the program is more than a statistical success. We have done a lot to encourage lenders to go into new areas and, as a result of being introduced to these areas, the lenders carry on mortgage activities in them thereafter.

This is an intangible benefit of the program, a significant corollary. Senator SPARKMAN. Have you handled any section 809 mortgages? Mr. GRAVES. No, sir, we have not. We do have funds set aside for section 809 mortgages, but the builders and promoters have not taken advantage of our funds.

Senator SPARKMAN. But if they got in a tight place it would be available?

Mr. GRAVES. Yes, sir. We do have funds earmarked for section 809 mortgages, especially in Redstone, sir.

Senator SPARKMAN. I am delighted to hear that, because there have been times when they needed them and it may come again.

Mr. GRAVES. Yes, sir.

Mr. Chairman, I would like to say that the life insurance companies, the commercial banks, the mutual savings banks, and the other private lenders engaged in the program have reaffirmed their faith in the principles of the VHMCP.

Now, it is true that the private lenders are interested in receiving the highest yield possible. Now, how much money they will put into VHMCP depends upon market conditions and a multitude of things. But based on past experience I feel that VHMCP will have a sufficient amount of funds to meet the need.

Senator SPARKMAN. When the report is received from the Veterans' Administration it will be inserted in the record at this point. (The following was subsequently received:)

Hon. JOHN J. SPARK MAN,

VETERANS' ADMINISTRATION, Washington, D. C., May 23, 1958.

Chairman, Subcommittee on Housing, Committee on Banking and Currency, United States Senate, Washington, D. C.

DEAR SENATOR SPARKMAN: We are pleased to furnish the enclosed progress report on recent activities in the loan guaranty and direct loan programs through April 1958. This is in accordance with Mr. Carter's request of April 22, 1958, and our interim advice that the information would be furnished during the last half of May so that it could include the most recent reporting period. I hope that this material will prove helpful to the subcommittee. Sincerely yours,

SUMNER G. WHITTIER, Administrator.

RECENT VA HOME LOAN ACTIVITIES

Loan guaranty program

For about a year and a half prior to 1958, there was a steady decline in GIloan activity. The low point in appraisal activity occurred in December 1957 when requests were received to appraise a total of only 5,037 dwelling units, 3,501 of which were proposed houses to be constructed and the remaining 1,536 were existing structures.

During the first 3 months of 1958, appraisal activity, although showing a slight upturn, remained at a relatively low level. In April, however, a resurgence of interest in loan guaranty activities was apparent. During April, the Veterans' Administration was asked to appraise 24,800 proposed units. This was nearly three times the volume in March and the highest monthly total since October 1956. Also, during April requests were received to appraise 6,726 existing dwellings. This was more than double the corresponding figure in March and the highest monthly total since August 1957.

This upturn in loan-guaranty activity is due in large measure to the authorizations contained in the emergency housing legislation, Public Law 85-364, enacted by the Congress on March 19 and approved by the President on April 1, 1958, coupled with a marked shift in the availability of mortgage funds. These factors have renewed the investor appeal of GI loans.

There is a timelag between the submission of appraisal requests and the receipt of applications for the guarantee of loans to individual veterans. This is particularly true with respect to appraisal requests on proposed construction. Thus, loan applications received for the purchase of new homes continued to decline in April, numbering only 4,266 as compared with 5,280 in March. However, loan applications on existing homes increased from 1,293 in March to 1,678 in April. It is anticipated that loan applications will show greatly increased activity in succeeding months.

New dwelling units started under VA inspection showed a moderate increase in April, numbering 4,785 as compared with 3,092 in March.

Direct-loan program

During the first 9 months of fiscal year 1958, no Treasury advances were authorized for the direct-loan program. As a result, funds available for making loans were practically exhausted in all direct-loan areas and at the end of March 1958 there were 13,084 veterans on active waiting lists.

The $50 million of additional Treasury advances for making direct loans during the fourth quarter of fiscal year 1958, as authorized by Public Law 85364, have been allotted to our field stations. Top priority in the use of these funds is being given to the veterans who were on waiting lists at the end of March, many of whom had been waiting for months for funds to become available.

Commencing with the first quarter of fiscal year 1959, regional offices will reserve 75 percent of the direct-loan funds available for making loans to veterans under our builder commitment procedure in an effort to encourage new construction activity in the housing credit shortage areas designated as eligible for direct loans. The remaining 25 percent of funds available will be used to make loans to veterans on an individual basis. The maximum reservation for a builder in a particular locality will be $135,000 or enough funds for 10 units at the new maximum $13,500 loan amount. This restriction is imposed in order to achieve as much coverage as possible within fund authorizations. Reports from our regional offices indicate that the publicity given to the extension of the direct loan program and the provision for making additional funds available from the Treasury, has resulted in a greatly increased flood of new applicants. As a result, there were more than 16,000 veterans on new waiting lists at the end of April. It will probably be some time before regional offices will have enough funds available to catch up with the demand for direct loans. Personnel problems

On June 30, 1957, there were 3,046 employees on duty in our field offices to handle activities of the loan guaranty and direct loan programs. Due to the decline in activity during the first 9 months of fiscal year 1958, a material personnel reduction took place and on March 31, 1958, we had only 1,956 employees on duty. At the end of April there were 2,022 persons on duty.

Every reasonable effort is being made to hire and train an adequate staff to handle the greatly increased loan guaranty and direct loan activity which is anticipated in succeeding months. Some of our regional office managers have indicated that they do not contemplate any staffing problems. However, other offices anticipate considerable difficulty in obtaining qualified persons. Undoubtedly, there will be times when the staff at a given office will not be sufficient to prevent some processing backlogs. However, everything that can be done will be done to make these occasions as rare as possible, and every effort will be made to give veterans and other program participants the adequate service to which they are entitled.

Expedients to speed appraisal processing

We have received inquiries concerning the possibility of the Veterans' Administration accepting determinations of value made by the Federal Housing Administration. It is our understanding that the committee desires us to include in this progress report our reaction to that proposal.

Because of a basic difference in the VA and FHA concepts of value we cannot accept the FHA valuation as being the same as the determination of reasonable value which we are required to make under the law. Value as used by FHA refers to a price which a purchaser is warranted in paying for a property for long-term use or investment rather than a price for which the property may be sold. Our definition of reasonable value is, "The amount a reputable and qualified appraiser, unaffected by personal interest, bias, or prejudice would recommend to a prospective purchaser as a proper price or cost in the light of prevailing conditions." Our determination of reasonable value establishes the maximum cost of the property to a veteran purchaser.

We are presently considering the feasibility of adopting certain processing expedients which will make some use of the FHA valuations. When an existing property has been appraised for the FHA by an appraiser who is also on the VA list of approved designated appraisers we may decide to accept the appraiser's certification that his estimate of the reasonable value of the roperty is identical with the estimated available market price of the property which he had previously determined in connection with his appraisal of the property for FHA.

We are also considering utilizing certain cost information developed by FHA in its valuation of a proposed project. We plan to utilize this information with certain adjustments in processing our committee appraisal of the same project. When our plans along these lines are completed we will issue appropriate directives to our field offices to adopt these procedures.

Senator SPARKMAN. Thank you very much, Mr. Graves. We certainly appreciate your giving us this encouraging statement.

The committee will stand in recess until 10 o'clock tomorrow morning, and then we will hear from Defense Department officials among others.

(Whereupon, at 4: 40 p. m., the subcommittee was recessed, to be reconvened at 10 a. m., Tuesday, May 13, 1958.)

HOUSING ACT OF 1958

TUESDAY, MAY 13, 1958

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON HOUSING,

in room

Washington, D. C. The subcommittee met, pursuant to recess, at 10:05 a. m., 301, Senate Office Building, Senator John Sparkman, chairman of the subcommittee, presiding.

Present: Senators Sparkman, Clark, Capehart, Bush, and Beall. Senator SPARKMAN. Let the subcommittee come to order, please. We continue with our hearings that we started yesterday on housing legislation that has been proposed, or may be proposed, this year. Our first witness this morning is Mr. William McChesney Martin. We are glad to see you and your associates here. We have a copy of your statement and you may proceed in your own way.

STATEMENT OF WILLIAM MCCHESNEY MARTIN, JR., CHAIRMAN, ACCOMPANIED BY WINFIELD W. RIEFLER, ASSISTANT TO THE CHAIRMAN; AND RALPH A. YOUNG, DIRECTOR, DIVISION OF RESEARCH AND STATISTICS, FEDERAL RESERVE BOARD

Mr. MARTIN. Mr. Chairman, the bills you have asked me to testify about today cover quite a bit of territory. They all deal with activities of the Federal Government relating to real estate, mortgage finance, or urban renewal programs. All of these activities, in their general aspects, are of interest to the Federal Reserve, since they make up part of the institutional framework of our economic system within which monetary policy must be formulated and carried out.

For the most part, however, the bills you have before you are either technical in the sense that they would make changes in authority or procedures that are thought desirable to facilitate carrying out policies already laid down, or make only incidental changes in established policies. I shall not comment on the bills that appear to be strictly technical, for I am not in a position to judge the desirability or suitability of the proposed amendments.

Several of the bills appear to make somewhat more than incidental changes in existing policy. One of these is S. 3064, which would make mortgages on 2-, 3- and 4-unit residences eligible for insurance under section 221 of the National Housing Act. Another is S. 3398, which would permit the Federal National Mortgage Association to regard preferred stock dividends paid to the Treasury as deductible expenses in computing the amount to be paid in lieu of corporate income tax under the secondary market operation. Three of the bills would extend

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