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marketing capacity, but it would be a costly factor in the last analysis as far as the taxpayers are concerned which should be of paramount interest when we are all looking for methods to save money. Not being able to have the full force of the banks' underwriting facilities, it is conceivable that the housing bonds might be offered in such substantial blocks that the underwriting capacity of strictly investment firms would be drawn on to the limit in financing the bonds, and the banks they seek to eliminate must either be their customers or have some of the public offerings be a flop which would shake the confidence generally with many who otherwise might be customers. Issuance of housing bonds is contemplated in amounts up to $8,000,000,000.

A more sensible way of distributing the bonds than to try to eliminate the banks would be, say, to let all the dealers and banks whose names begin with the initials A through M handle one batch, with the next one to be handled by all dealers and banks from Y through Z?

By having banks participate in the underwriting—and the banks will invite other dealers to participate with them, thus removing any question of it being onesided or controlled-it seems obvious that because of the very nature of this situation that a lower interest rate will follow in the sale of these securities. With $8,000,000,000 involved, the saving over a 40-year period that the bonds would be authorized to run will produce amazing figures. I am attaching a schedule which shows the yearly payment to amortize a debt of $1,000 including annual interest. If, for the sake of discussion, you will take a 214 -percent bond with interest and principal being amortized over 40 years, the annual requirement per million dollars of bonds is $38,177 (at 244 percent), and for a billion dollars of bonds it will be $38,177,000. Project this to $8,000,000,000 and you have a total annual cost of $305,416,000 and multiplying this by 40 for the 40-year period, you have a total cost of $12,216,640,000. Therefore, if you should have a saving of only 14 of 1 percent hy bettering the marketability and salability of the bonds by having banks participate, let us see with the banks eliminated, which would be the case if section 502 is removed from the Housing Act, how application of the foregoing formula at a 21/2-percent rate would result.

The annual requirement per million dollars of bonds at 212 percent is $39.836 over a 40-year period. For a billion dollars of bonds it will be $39,836,000. Project this to $8,000,000,000 and you have a total annual cost of $318,688,000 and multiplying this by forty for the 40-year period, you have a total cost of $12,747,520,000. Therefore, the difference of 14 of 1 percent in interest cost on 40-year financing between 2'4 and 242 percent amounts to approximately $530,850,000. This is all very simple arithmetic, but the difference in cost is astronomical.

In summary, the participation by banks in the underwriting, sale, and distribution of the housing bonds seems absolutely necessary to obtain the widest and best distribution of the issues as they come along, or you automatically cut down your distributing capacity to one-half, as I believe it is an undisputed fact that the banks are among the largest distributors of bonds of this type. Banks by law now are underwriters of tax-exempt bonds throughout the country. The banks have the unquestionable financial responsibility which is going to be needed in any program involving the distribution of $8,000,000,000 of bonds of a security which in effect is like bonds issued by other Government agencies, and the banks have certainly proved their ability to handle other issues by their support and distribution of these securities.

The staggering amount of money which may be saved by broadening the markets in retaining section 502 of the Housing Act of 1949 permitting banks to participate is in itself a primary reason to retain banks in this business. This undertaking is so vast and important in the all-around public interest there is the obvious need for a united effort between banks and dealers to handle the business in the most successful and expeditious and least costly manner.


Washington, D. O., April 9, 1949. Hon. BRENT SPENCE, Chairman, Banking and Currency Committee,

House of Representatives, Washington, D. C. MY DEAR COLLEAGUE: In view of the fact that the House Banking and Currency Committee is currently holding public hearings on the bill H. R. 4009, I thought you would be interested in the attached letter, including a housing survey as conducted by the Michigan Home Economics Association Housing Division of Wayne University.

I shall appreciate your consideration of the enclosed information and possibly including the results of the survey in the transcript of the record. Sincerely yours,

Louis C. RABAUT, M. C.


Detroit 1, Mich., March 23, 1949. Hon. LOUIS C. RABAUT,

House of Representatives. MY DEAR MR. RABAUT: Condensed here and submitted for your consideration are the views of 241 members of the Michigan Home Economics Association, to whom were put the enclosed questionnaire. The response was 18 percent from rural villages of 4,000 or under, 18 percent from small towns of 4,000 to 20,000, 11 percent from cities of 20,000 to 75,000, and 53 percent from large cities of 75,000 or over.

Most of all, they would like to see written into the forthcoming housing bill a provision for establishing a program of research into ways to reduce building and rental costs while raising housing standards. Next in order of importance, they say, are the needs for public housing and slum clearance.

These facts were established by tabulating replies to the questionnaire to determine viewpoints as to what features are most needed in the national housing legislation.

We enclose a copy of the questionnaire and a summary of the results. You will observe that the features of the proposed housing program have been rated according to their relative importance as evaluated by those replying. The order of preference follows: First, research program; second, public housing; third, slum clearance; fourth, aid to private enterprise; fifth, farm housing.

These women are in positions where they see the housing needs and problems of many families. In most cases the work of each whose view is here expressed is connected in one way or another with a number of Michigan families and their homes. They work in teaching, home service, home economics extension to rural and other families, home economics journalism and social work.

Since they are in these very favorable positions to see family living problems and answers, we ask your careful consideration of their opinions. Sincerely yours,

(Mrs. W. D.)

Chairman, Housing Division,
Michigan Home Economics Association.


What do you want AHEA to emphasize in housing legislation ?
Legislation pertaining to housing should include the following:
(1) Basic research program to achieve low-cost housing such as

Housing need, rental and sales market.
Development of new building materials.
Lower cost of materials,
Better designing.

More efficient and uniform building costs.
(2) Low cost public housing.
(3) Slum clearance.
(4) More financial aid to private enterprise.
(5) Adequate farm-housing program.

(6) Other suggestions. Number the above points in the order of their importance from the standpoint of meeting the national housing needs.

In writing or talking to your Congressman, which of the above listed factors do you believe is our strongest talking point and why?

Basic research program will provide facts and figures upon which one may draw for further assistance. Will aid a greater number of families--most important at the present time.

Other comments:

Please return to Mrs. Frances G. Sanderson, chairman, housing division, Michigan Home Economics Association, Wayne University, Detroit 1, Mich.

Please return as quickly as possible.

Results of survey among members of Michigan Home Economics Association as

to features desired in forthcoming housing legislation

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Num. Per- Num. Per- Num- Per- Num- Per- Num. Per. Num. Per. ber cent ber cent ber cent ber cent ber cent ber cent

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A research program is needed most of all. Slum clearance and public hous. ing are practically tied for second place rating.

Others commented on the needs for: Better house design, a farm housing program, consistently better standards of workmanship, more cooperation between labor and management, identifying and breaking through barriers to good housing, more rental housing, less dependence of populace on Government aid, regulating activities of the real-estate lobby, “prompt action," education of the masses to better understanding of good design of and proper care of homes, lower real-estate taxes, improved materials and methods of construction.



I present this statement on behalf of Americans for Democratic Action, an independent, progressive political organization dedicated to the achievement of economic security for all people within a framework of universal political freedom. ADA has 123 local chapters in 40 States. Our collegiate affiliate, Students for Democratic Action, has chapters on 145 American campuses.

ADA welcomes the opportunity to present its views on the question of a national housing policy. Our organization has long considered the housing situation as one of our most serious and urgent economic problems; our basic position in this matter is that every family should have adequate housing regardless of its economic status.

What is needed, in our opinion, is a sound national housing policy. The present hodgepodge of housing legislation fails to provide the framework for a sound, workable, and well-rounded program. It is up to Congress to enact legislation to provide for a national policy.

First, I should like to give you ADA's views on housing volume and rental rates, and then discuss some aspects of the Federal Government's mortgage-insurance system. We believe they are matters which should be given full and detailed consideration in shaping the national housing policy which we believe is necessary.

ADA believes, and I believe, that such a housing policy should be aimed at the goal of 112 million houses per year for the next 10 years. This goal can most effectively he met if the Congress and the Administration pledge unconditonally to underwrite the necessary production. Private builders should be given every opportunity to meet the annual demand of 11 million units, and the Federal Government should, through the facility of local public-housing authorities, assure production of whatever number of units the private builders cannot produce.

The record of monopolistic self-protective practices in the housing industry is most shocking. These practices, which have added greatly to the present exhorbitant unit cost of housing, grew out of the fear of future economic depressions. This fear, held by management and labor alike, has its roots in the blight this industry suffered in 1921 and 1927. The fear can be eliminated if the Government acts to assure that such conditions will not again plague the industry. With a strong Government guaranty, the housing industry can be expected to produce many more good, moderately priced houses, and the Government itself will have a smaller margin to provide in attaining the required national housing volume.

No less than one-third of the needed 142 million units produced each year should be devoted to rental units for families in the low and lower-middle-income brackets. This half million units per year must have monthly rentals from a minimum of, say, $15 to a maximum of $15 a month. America's young families, veteran and nonveteran alike, need this kind of housing desperately.

Private builders have not and cannot, even with greatly reduced costs, provide this low-rental housing. In meeting its responsibility to a substantial portion of the young families of America, the Congress has no choice other than public housing. The Federal Government, through a system of subsidies to the local public-housing authorities, can and should make up the balance between the dollar cost of providing these houses and the maximum rentals that can be afforded.

In terms of specific legislation now before your committee, ADA finds that the principles set forth in H. R. 3877, introduced March 29, 1949, by Mr. Mitchell, are consistent with the ADA program adopted at its convention in April 1949, and ADA is very happy to support the basic principles of H. R. 3877. ADA is convinced, however, that the volume of public housing in this bill is insufficient, and should be increased to meet the over-all goal of 1142 million units of housing per year. ADA does not have a specific unit figure in mind, but it urges this committee to request the Housing and Home Finance Administrator to submit estimates on the basis of the proposed annual goal of 1142 million units of all types of housing. Under no circumstances should the provisions of H. R. 3877 be altered to meet the smaller number of housing units provided for in S. 1070 now before your comunittee.

We believe that the long-term housing solution for the lower-middle-income group lies in lower unit costs. This can be achieved through a better use of new materials and techniques, prefabrication, the application of mass-production methods and the removal of monopoly and restrictive practices. If this program is to meet the needs of these families with incomes between, say, $2,500 and about $4,000, it must be supplemented by direct long-term Government loans at a very low rate of interest, such as is provided in the Mitchell bill.

The housing problem of these middle-income families cannot be solved unless quarters are made available to them at a price range of from $40 to $45 a month.

We have no further specific suggestions in regard to the question of housing volume and rental rates.

There are a few things we would like to point out with respect to the Federal Government's insurance of mortgages. The National Housing Act was originally enacted to stabilize the home-finance market and to encourage investment in home construction. Time has proven the wisdom of this activity as a function of the Government. It would appear, however, that in some important respects, the Federal Housing Administration has neglected its obligation to the consumer of housing, whom it was set up to serve no less than the builders and the financial institutions. We believe that there are two areas in which significant changes should be made; both of these would probably require changes in legislation, although this is by no means certain.

The first point to which I would like to direct the attention of the committee is the matter of a guaranty or warranty of construction quality. An average home purchaser does not have the ability to judge the quality of the product. When he purchases a new house which was built with an FHA mortgage commitment, he should be able to regard this commitment as a hallmark of quality. I regret to say that, under the present administration of the FHA, he cannot.

As the committee knows, the FHA is supposed to make at least three inspections during the course of construction on homes on which it has a commitment to insure. If these inspections are done in suflicient detail by qualified personnel, then the FHA should be willing to certify that the house is well built, of satisfactory materials, and according to plans and specifications. The proposal has been made time and again before various committees of the Congress that the quality of construction should be guaranteed when the FHA inspects the house during construction.

In the original so-called Wagner-Ellender-Taft bill, section 312 called for the FHA to require the principal contractor to execute a 1-year warranty for the benefit of the mortgagor, as prescribed by the Administrator, against structural and other defects in construction, faulty materials, or workmanship, and any violation or breach of, or noncompliance with any specifications, covenants, or conditions set forth in any of the construction contracts.

Mr. Raymond Foley, then Administrator of the Federal Housing Administration, testified before the Senate Banking and Currency Committee against this amendment to the National Housing Act. It was stricken, I believe, in committee and was not in the bill which was sent to the floor; in any event, it did not appear in the revised S. 1592 which was reintroduced in the second session of the Seventy-ninth Congress.

The basis of Mr. Foley's opposition was largely one of administrative difficulty and because he believed that it would force builders to resort to financing outside of the FHA mortgage-insurance system rather than give such a warranty. We are in sympathy with the difficulty of solving many of the problems outlined in Mr. Foley's testimony at that time. We do believe, however, from the evidence available, that his basic assumption was not well founded.

If the public knows that the only way it can get a certification of housing quality is through the purchase of a home which was constructed with a FHA mortgage commitment, it seems to us that it would be very difficult to sell houses under any other plan. It is quite true that it would take consumer education by the Government. But, rather than drive builders out of FHA, we believe that it would encourage builders who are interested in building good houses at a fair profit to come under FHA, for it would be difficult to sell houses in any other way because of consumer insistence.

The ADA believes that section 312 of S. 1592, as introduced by Senators Wag. ner, Ellender, and Taft in the first session of the Seventy-ninth Congress, was soundly conceived. There may be some desirable changes which we are not qualified to suggest. We do urge the committee to fully explore this matter and to seek Mr. Foley's advice and assistance. The FHA must be required to have some regard for the consumer of housing.

The second matter of concern to the ADA in regard to Federal Housing Administration operations has to do with appraisals and their ultimate effect upon cost to the consumer. Despite all of the attempts in recent ye to reduce appraising to a science-and we admit that many advances have been made-it still remains largely in the area of conjecture and opinion. We admit that the cost of production of an item is often a poor criterion of its value. But we do firmly believe that, when the Federal Government is giving the kind of aid to private enterprise that is being offered under the National Housing Act, it is a matter of high concern to the country that it is not abused.

We do know that it is nearly always said that the FHA is an insurance system which costs the Government nothing. Does this committee know anything of the margin of safety in the various FHA insurance funds? Is the FHA's past experience on the issuance of debentures after foreclosure sound for projection of the future? Remember, the FHA has operated almost solely during a time of rising prices and prosperity. Furthermore, I would like to call the committee's attention to the fact that the home purchaser actually pays the FHA mortgage-insurance premium for the benefit of the lender.

The fact is that we do not know what the ultimate cost of FHA operations will be to the Government. So long as the insurance funds remain solvent, it will cost nothing. If they become exhausted, the unconditioned guaranty of FHA debentures by the United States Government will have to be fulfilled.

We believe that FHA insurance operations should be wholly geared to a protection of its insurance funds, holding down the contingent liability of the Federal Government, and assuring as far as possible fair prices to consumers.

It is perfectly obvious to all that the amount of the FHA commitment is probably the most important factor in determining the ultimatę sales price of the house, or the rentals in case of rental housing.

We do not wish to charge the FHA with laxness in appraisals, but we feel that where there is smoke there is very likely some fire. During the period of FHA insurance under title VI on small homes, it was the common belief that builders were getting from 115 to 125 percent of their cost out of the FHA commitment. The additional 10 percent down payment they received on the finished house was simply additional profit.

It is our considered judgment that FHA appraisal policy—and we must admit that it was greatly influenced by direction of the Congress to basic appraisals on “necessary current cost"-was an important factor in the inflation of home prices. We believe, however, that the Government's mortgage-insurance system should be soundly administered-administered to the end of a good home

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