and it means analyzing the applicable State law. We have another serious problem: If we are able to get restitution made to the corporation, which in itself would be an accomplishment, because it would protect us in the event of default. We hope to be able to apply any recovery of so-called windfall profits toward recasting the mortgage, and if we do, we will then effect rent reductions.

In both of those areas there is a great deal of legal research to be done. Also, we have evidence of irregularities that may ultimately constitute fraud in a legal sense. We have evidence of corruption on the part of FHA employees. There are many problems of that nature which are strictly legal in their concepts which we hope to investigate and prepare these cases so that if we are not successful in effecting settlements, we will proceed to litigation.

MORTGAGE INSURANCE APPLICATIONS

Mr. TABER. I have been going over these justifications. The justifications indicate that the funds requested are for the purpose of taking care of 214,500 new applications, that were not contemplated at the time of your original budget hearings.

Mr. THOMAS. That is right. That is a nonadministrative cost. Mr. TABER. Your testimony here today is on the question of windfall operations and checking up, perhaps, on possible fraudulent procurement of Federal mortgages, or Federal guarantees.

Mr. THOMAS. Might I interrupt for just a minute? Their request falls into two parts. One is to take care of the increased workload in the nonadministrative expense in the field and to take care of new applications which exceeded their best judgment by 40 percent. That is a little over $5 million dollars.

The second is a small amount, $125,000, to take care of administrative expenses. That fund will be spent for lawyers and accountants who will study windfall profits.

The one request is for $125,000, a small amount, and the other is for five million plus.

Mr. BAZAN. Of those figures, $125,000 is for windfall and for certain other problems under 608, and $5,310,000 is the expense of processing these additional applications.

Mr. TABER. How many applications have you had already?

Mr. BAZAN. We have had this fiscal year, to date, 337,000 applications through December, and we expect to get nearly 400,000 in in the balance of the fiscal year. And we are backlogged almost throughout the country on an average of better than a month; but it ranges in some offices from 3 weeks up to 7, 8, and 9 weeks. We hope to bring those backlogs under control and get out this additional business that we are getting.

Mr. TABER. How many applications did you contemplate you would have when you were up here asking for your regular request last year? Mr. BAZAN. When we came up for our regular request, it was for a program of 425,000 unit applications for mortgage insurance. The revised estimate for the year is 706,000 and that accords with the rate at which we are now receiving them. The original estimate accorded with the general assumptions made by the administration that housing applications would be down and the starts would be around 900,000; whereas they are running now between 1,200,000 and 1,300,000. And

the existing construction home mortgage applications have just about doubled in the last few months following the new Housing Act.

Mr. TABER. What percentage of the housing construction is financed through these operations?

Mr. BAZAN. Approximately 25 percent up to 30 percent start under FHA inspection. Not all of them ultimately are financed through FHA insurance, but they start under our program and come through FHA processing.

Mr. TABER. On that basis of 600,000, you would have total constructions or starts of approximately 1,800,000 units.

Mr. BAZAN. Excuse me; but 300,000 of our total applications will be for existing homes that are not counted in those construction figures.

Mr. MASON. Another thing: Under the new act, a greater percentage than in the past will probably be under FHA because of the more liberal terms of the Housing Act under FHA than the conventional.

Mr. TABER. With that picture indicating probable housing units under construction of better than 1,200,000, you would not figure there would be any need for these public housing projects, would you? Mr. BAZAN. That question is beyond my province, Mr. Taber. Mr. COLE. I think, Mr. Taber, that would be the type of question I should answer rather than FHA.

The question of the need for public housing as related to the number of starts in FHA must be broken down. Public housing is supposed to provide housing for people in low incomes who are unable to obtain decent housing in the private market. The last Congress limited public housing to those people dispossessed from slum clearance projects and by other governmental action. So the program is quite limited.

Now it is true, in my judgment, that an expansion of construction of new housing, particularly with the assistance of FHA which helps to construct housing in the lower priced bracket-it is true that the expanded program of construction of new housing in the lower cost area will relieve the pressure or the need of housing for people with low incomes.

Quite frankly, there will always be people in low incomes unable to purchase or to rent a house in certain price brackets. We all know that. The policy question then becomes-What is the responsibility of the Federal Government to assist those people?

I do not know whether I have answered your question, but I do think you cannot merely say that by reason of 1,200,000 starts in 1 year there would be no need for assistance to people with low incomes. I also say to you that you have a very good point—that the expanded building of new housing will relieve the pressure for assistance to people in low incomes. The issue is whether, in an expanded housing market, there is any need for public housing, or how long that need will continue. You can break it off and say "None," or you can say there will still be a field in which some people will need assistance. It is a matter of judgment and policy.

Mr. THOMAS. I think our genial and able counsel (Mr. Meistrell) was a little on the weak side a while ago, on the modest side, when he spoke about FHA being 3 or 4 weeks behind with their workload. Several members of this committee visited a good many of their

field offices and they are 3 or 4 or 5 months behind. There is not much justification for that.

Gentlemen, if there are no further questions, we will excuse you gentlemen and thank you for coming over.

Mr. MASON. We thank you very much for the opportunity.
Mr. THOMAS. We will be seeing you again, I am sure.

TUESDAY, JANUARY 11, 1955.

FOREIGN CLAIMS SETTLEMENT COMMISSION

HENRY J. CLAY, ACTING CHAIRMAN

ROBERT A. KENNEDY, EXECUTIVE DIRECTOR
ANDREW R. MCGUIRE, GENERAL COUNSEL

JULIUS KLEIZO, BUDGET OFFICER

Mr. THOMAS. Gentlemen, the committee will come to order. We have with us this morning witnesses from the Foreign Claims Settlement Commission. We have Mr. Clay, Acting Chairman; Mr. Kennedy, the Executive Director; Mr. McGuire, General Counsel, and Mr. Julius Kleizo, Budget Officer.

The letter of transmittal contained in House Document 61 and pertinent parts of the justification will be inserted in the record at this point.

(The information referred to is as follows:)

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET, Washington, D. C., January 7, 1955.

The PRESIDENT,

The White House.

SIR: I have the honor to submit hereiwht for your consideration a draft of a proposed provision pertaining to the fiscal year 1955 for the Foreign Claims Settlement Commission, as follows:

"INDEPENDENT OFFICES

"FOREIGN CLAIMS SETTLEMENT COMMISSION

"ADMINISTRATIVE EXPENSES

"For an additional amount for "Administrative expenses", for carrying out the provisions of the Act of August 31, 1954 (Public Law 744), $130,000, to be derived from the War Claims Fund created by section 13a of the War Claims Act of 1948 (Public Law 896, approved July 3, 1948); and this amount and amounts previously made available from this source to the Foreign Claims Settlement Commission for 'Administrative expenses' shall remain available until June 30, 1955: Provided, That the limitation under this head in the Independent Offices Appropriation Act, 1955, as amended by the Supplemental Appropriation Act, 1955, on the amount available for expenses of travel of the Foreign Claims Settlement Commission (War Claims Commission) is increased from '$8,000' to '$12,000"."

The proposed provision, including authority to expend unobligated balances which otherwise expire on March 31, 1955, is necessary to provide funds for the organization and administration of claims settlement programs authorized under Public Law 744 (approved August 31, 1954). No provision has to date been

made for these expenses during the fiscal year 1955.

I recommend that the foregoing proposed provision be transmitted to the Congress.

Respectfully yours,

ROWLAND HUGHES,

Director of the Bureau of the Budget.

The authority to expend unobligated balances of $45,000 remaining after March 31, 1955, from funds appropriated to the Foreign Claims Settlement Commission and the additional $130,000 is necessary to provide funds for the organization and administration of claims under Public Law 744 (approved August 31, 1954). No administrative expenses have been appropriated for this

purpose since Public Law 744 was passed after supplemental funds were inade available.

Of the $915,000 available during this year, $770,000 will be required to complete old claims programs by March 31, 1955. Of the remainder, $100,000 has been earmarked by Public Law 663 (approved August 26, 1954) for Korean claims expenses. The $45,000 unobligated balance represents savings.

The $175,000 for the fourth quarter, fiscal year 1955, is required to carry out the provisions of Public Law 744 in effecting an orderly transition from the old claims program to the new, formulating new policies and procedures, developing new claims criteria, establishing administrative and fiscal controls, and beginning the processing of claims.

The amount estimated is considered the minimum required for the fourth quarter, fiscal year 1955, for these purposes. This estimate is based on prior experience in instituting claims programs and will enable the Commission to carry out the program under Public Law 744 through to fiscal year 1956.

01 Personal services, $153,300

Personal services attributable to Public Law 744 claims program is reflected in the following table showing the relationship to the current year appropriations. The net difference represents the amount of personal service funds required by the Foreign Claims Settlement Commission for the fourth quarter, fiscal year 1955, for activities under Public Law 744, including a proportionate share of terminal leave payments of approximately $30,000 required to achieve the employment level required for fiscal year 1956.

It is estimated that $4,000 will be required during the fourth quarter for travel of employees in connection with the administration of claims programs and provide for the expenses of attendance at meetings.

03-15 Other operating expenses, $17,700

The expenses under these objects will provide for the communication services, reimbursements to other governmental agencies for use of their facilities and services in carrying out the functions of the Commission, purchases of necessary supplies and equipment, payment of necessary taxes and other expenses necessary for the proper performance of the Commission during the fourth quarter, fiscal year 1955. The total cost will be $30,000, of which $17,700 will be for administration of Public Law 744 and the balance of $12,300 for expenses of Publie Law 615.