So, Mr. Chairman, our problem is give us the money, some way or other, and we will build the houses. Thank you, kindly.

The CHAIRMAN. We certainly thank you for that statement. I will ask Mr. Josephs if he would mind giving us his idea of the problem of the mortgage field as he sees it? Mr. Josephs is president of the New York Life Insurance Co., one of the leading life insurance companies of America. Mr. Josephs, would you mind discussing that problem?

Mr. JOSEPHS. Thank you, Mr. Chairman, and members of the committee. From the point of view of the life-insurance companies we collect savings around the country, and the life-insurance business as a whole invests about $6 billion a year. When there is a mobilization of the economy, such as we have now, there are of course a great many claimants for the funds, for defense operations, public utilities, railroads, as well as demands for mortgages for housing.

Because of this, there are many more demands upon the life-insurance companies for funds than they were accustomed to in recent years, and more, perhaps, than they can satisfy. These demands have been somewhat expressed by a change in interest rates, including the change of interest rates on Government bonds and corporate securities.

There is apparently a shortage of money available for construction of certain types of houses, because the rate there is fixed, while it has increased in other directions. There has been perhaps a half of 1 percent change in the general interest level for corporate securities. Rates of interest on insured mortgages and VA mortgages have remained at the same figure. The result is when claimants for money come to us, we will lend in that direction which gives our policy holders the best return.

We try to keep a substantial portion of our funds in housing mortgages, but, as I say, there is today a better bargain for us in other directions. That has caused us perhaps to reduce our purchasing somewhat. However, over the past few years we have been increasing the percentage, as a good many other insurance companies have done, of assets invested in mortgages. The result is that in the last few years, there has been a higher-than-normal increase of funds placed in mortgages. That seems to have come to an end at the moment, so that most of us are keeping the same percentage of mortgages in our portfolio as we had before. This makes for a reduction in the rate at which we are purchasing.

To sum up, we are asked for a lot more money in a lot of different directions in the total economic mobilization. Within the mortgage field itself there is a distortion, now, between the rate which will be paid for the conventional type of mortgage as against the VA and FHA rates-which were satisfactory 1 year ago.

As to defense housing, I speak for my company particularly, but I think it is true of the rest of the life-insurance companies, very few of them have bought under title 9 of the FHA simply because we have other means of investing our money in the investment quality of Government-insured loans with which we are more familiar, and in which we have, so far, somewhat more confidence. Thank you very much. The CHAIRMAN. Thank you, Mr. Josephs.

Mr. Foley, as Administrator of the Housing and Home Finance Agency, responsible for the national housing program, what do you think about the problem that confronts us, particularly as to interest rates?

Mr. FOLEY. Mr. Chairman, and gentlemen, the subject, of course, is one of the utmost importance to the responsible officials of the Housing Agency to whom the Congress and the public at least look in part for a successful performance of the task involved in housing, and particularly in defense housing.

As I understand it, quite largely this session, and the ones in the next 2 days are to be devoted to the question of the availability of necessary financing through private channels for the housing program of the year.

I think, Mr. Chairman, there may be some perhaps subconscious disposition to try to judge the availability of funds this year as against the demand for funds created by the housing production in previous years. In other words, housing production, measured in starts something like 1,300,000 in the year 1950, and something slightly under 1,100,000 in the year 1951, has accustomed us to measuring our financing needs as against that kind of volume. As everyone here, of course, is well aware, the necessities of the defense program, and the anti-inflationary effort have dictated an effort to reduce the volume of starts. Last year a target figure of 800,000 to 850,000 was set, but was exceeded, as everyone knows, for reasons that were perfectly obvious. While we did put credit regulations into effect, there was a large amount of advance commitment exempt from those restrictions, so the real effectiveness of the credit restrictions took place only in the latter part of the year.

This year, as has been very recently announced, the responsible agencies in Government having to do particularly with materials, and with housing, and with the matter of general stabilization, have reached concurrence in the belief that about 800,000 starts is what we call the attainable ceiling. I should explain that, because I think it would be useful in the further discussions. The volume is attainable in the sense that those materials of critical nature which have to be carefully allocated, and which can be allocated to housing would make possible that number of starts with assurance of completion during a reasonable building time only if there is careful conservation of the amount of critical materials placed in individual units.

It is a ceiling because we believe that that is the largest number as against the presently available supply of materials, or the outlook for them, that it would be safe to start and expect to complete during a reasonable construction period, and safe also from the standpoint of the effect of a much larger program in the flow of credit, and its effect on the general stabilization picture.

The CHAIRMAN. Mr. Foley, do you mind being interrupted? You say the starts this year will be around 800,000?

Mr. FOLEY. That is what we have set forth as the figure at which. we should aim as the attainable ceiling, practical from the material standpoint, and top from the other standpoint.

The CHAIRMAN. In the housing situation, are any attempts being made to substitute materials such as are being made in the automobile industry? Where you use so many critical materials, you could have so many more houses if you substitute.

Mr. FOLEY. If we are to get 800,000 units out of what presently appears to be the available supply of critical materials for housing, it will mean, Mr. Chairman, that the amount that habitually would be put into the average housing units of certain critical materials will have to be reduced through substitutions or acceptable alternatives, and through better design.

The CHAIRMAN. I did not quite hear what you said. Did you say that even with the 800,000, you will have to substitute materials? Mr. FOLEY. Even with the 800,000. If we achieve the 800,000, there will have to be strict conservation of critical materials.

The CHAIRMAN. Is there any possibility of substituting more materials to get more than that?

Mr. FOLEY. Yes, we believe after studies that can be accomplished and still get sound housing.

The CHAIRMAN. Have you an estimate?

Mr. FOLEY. We have a great many figures we can furnish on the details of the use of materials.

Senator ROBERTSON. I want to ask a question at that point:
How many units were started last year?

Mr. FOLEY. Slightly under, according to present figures, 1,100,000.
Senator ROBERTSON. That is the second largest in our history.
Mr. FOLEY. I believe it was.

Senator ROBERTSON. I understood it was the attitude of the Federal Reserve Board-possibly it was Mr. McCabe's attitude-that the starts in 1951 should not exceed 600,000.

Mr. FOLEY. I had not been advised that that was the view of the Federal Reserve Board. I think that figure has been published. It was published, however, simply as a derivation using the standard consumption of critical materials per house that was customary in the past as against a projection over the year of the second quarter allocation.

What we are saying, Senator Robertson, is that as against that base, with more conservative use of the critical materials per house, 800,000 could be safely produced.

Senator ROBERTSON. I understood Mr. Wilson when he testified before our committee several weeks ago to say in his opinion it would. be necessary to reduce new starts this year about 400,000 below last year.

Mr. FOLEY. While I was not at that hearing, there has been, Senator, close consultation between their agency and ours. Moreover, I serve as an assistant to Mr. Wilson as Coordinator of Defense Housing and Community Facilities. I think they intended merely to convey that there would have to be a 40-percent reduction in the critical materials used for housing. We are simply saying that a conservative distribution of that amount of critical materials will safely produce 800,000 units.

Senator ROBERTSON. I would like to finish on this particular point. What is the total amount of housing mortgages that the Federal Government has now guaranteed?

Mr. FOLEY. I do not carry the figure in my mind, Senator. Perhaps Mr. Richards can tell you the figures of FHA, and Mr. King for the VA.

Senator ROBERTSON. I was advised it was approximately $15,000,000,000.

Mr. FOLEY. Presently on the books? It is probably more than that as a total for both FHA and VA programs.

Senator ROBERTSON. Let us get as accurate a figure as we can get. Mr. RICHARDS. I can give you the figures for the Federal Housing Administration.

We have insured $25,850,000,000 in loans, and of this number there is an outstanding balance of a little over $14,000,000,000 of insurance in force.

Senator ROBERTSON. Then I understood there were some other mortgages that were carried above $15,000,000,000.

Mr. KING. Senator, in the Veterans' Administration loan-guaranty program, through the end of 1951, we had guaranteed or insured about $16,000,000,000 in home loans.

Senator ROBERTSON. With how much in force now?

Mr. KING. We do not require those holding the loans to give us monthly tallies on pay-offs, but we would estimate the figure that there must be somewhere between $12,000,000,000 and $13,000,000,000 outstanding. Of that total, however, the Government's contingent liability under the guaranty is about $7,000,000,000.

Senator ROBERTSON. You have $14,000,000,000 in one agency, and $14,000,000,000-plus in another agency. That is $28,000,000,000; is

it not?

Now, Mr. Foley, when you say "we have guaranteed," you mean the Government has; do you not? It is a liability of the Federal Government; is it not?

Mr. FOLEY. Yes, sir; a contingent liability.

Senator ROBERTSON. Last week the Secretary of the Treasury testified before the Appropriations Committee that we were going into debt $5,000,000,000 this year, and on the basis of the presently presented budget, if there were no new tax bill that we would go in the red over $14,000,000,000 next year, and that when we did that we would be within $100,000,000 of the statutory debt limit of $275,000,000,000. I asked him how much the indirect obligations of the Government were which we would have to assume in the event of a depression. He said he did not have those figures, but would supply them for the record. We now find that there would be $28,000,000,000 on housing alone, and possibly there would be a good many more billions in various other agencies which the Government has underwritten.

Mr. FOLEY. I assume, of course, Senator, you have in mind a complete failure and foreclosure of all, and total loss on property, which of course would probably not happen in any case. The contingent liability in the FHA, perfected by an insurance and reserve in case of the complete depression, might not be sufficient, but would have back of it the properties you would be taking over, which would be managed and sold at the market value. So, while that might be the total contingent liability assuming complete failure, I think it would be quite unreasonable to assume anything like complete failure.

However, what I was trying to bring out for the purposes of this discussion

Senator ROBERTSON. Let me add that I have not assumed there will be complete failure, and I do not think all market values will be wiped out under any foreseeable conditions. I am thinking in terms that a private individual or corporation would have to figure if somebody:

said it was insolvent. I might not have to pay all these obligations, but they are obligations on the books; are they not? If you cannot meet them now, you are insolvent.

That is a matter that we cannot ignore. If 800,000 new units of homes are to be financed primarily by the Federal Government assuming 90 percent-is that the figure?-90 percent of the cost of those homes?

Mr. FOLEY. Well, it varies, of course, according to the type of insurance.

Senator ROBERTSON. What are the limits?

Mr. FOLEY. It could range to 95 percent the highest possible under FHA, and under VA

Senator ROBERTSON. If you had a friendly inspector, and he gave 110 percent valuation for the contractor selling them, the security is depreciated to that extent if the Federal Government ever has to step into the picture; is that not true?

Mr. FOLEY. You would have, of course, the asset of the property itself, which I should also point out, Senator, when you are talking about 800,000, 1,000,000, 1,200,000, or whatever, it is not to be assumed that that total program of production is going to have Government guaranty or insurance. About one-third has been our experience in the FHA. Possibly, in special situations, it will be a little higher, but at least one-half would be conventional, and not so guaranteed. Shall I go on?

The CHAIRMAN. Please go on.

Senator ROBERTSON. I want to make this observation, Mr. Chairman, because this is a very vital matter. We sit in the Appropriations Committee, and hear the military, tell us we face a grave emergency; that we may have our brains beaten out at any unexpected moment, and they cannot cut that $52,000,000,000 for the military on top of an authorized $90,000,000,000 one red cent. That is a matter that naturally disturbs us. Just how grave is the emergency, or can we go ahead with our normal domestic program, and build all the houses that can be financed, with the Government underwriting insurance companies, banks, and so forth.

The CHAIRMAN. Will you go ahead, Mr. Foley.

Mr. FOLEY. The point that I was making was this: that, in trying to evaluate whether or not there will be available sufficient mortgage funds to carry out the housing program of this year, we have to keep in mind that the program that is proposed as a ceiling is very considerably less than that of previous years, and therefore would require a much smaller total mortgage fund.

The Housing Agency and the other agencies of Government concerned with these matters, but particularly the Housing Agency, are interested in that production of housing from three general classifications:

One, what we might call the general civilian need as distinguished from the other two. Second, and which for the purposes of this discussion is particularly important, the defense housing need in areas where there are critical defense areas. Third, is the general need of the veterans with particular reference to the special means that Congress has set up to assist them in obtaining loans.