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FEDERAL HOUSING ADMINISTRATION MEMORANDUM June 25, 1936. To: Hon# Marriner S« Eccles, I know you will be interested in reading the enclosed statement reprinted from the Congressional Record. The following figures, and the chart attached, indicate the rapid recovery of residential building. NEW RESIDENTIAL BUILDING PERMITS ISSUED Cities of 10,000 and over Source: Bureau of Labor Statistics 1934 Jan. Feb. Mar. Apr. May I 4,448,000 4,962,000 6,878,000 10,515,000 11,958,000 1935 $ 9,163,000 10,144,000 20,192,000 23,128,000 25,573,000 1936 $ 30,434,000 29,368,000 37,916,000 45,523,000 45,720,000 Paralleling these figures, the insured mortgage business of the FHA increased 237f0 during May, 1936 over May, 1935. The FHA does not lend government money• It insures loans made by banks, building and loan associations, insurance companies and other private lending institutions. Stewart McDonald Administrator ACHIEVEMENTS OF THE FEDERAL HOUSING ADMINISTRATION STATEMENT BY HON. STEWART McDONALD FEDERAL HOUSING ADMINISTRATOR REPRINTED FROM THE CONGRESSIONAL RECORD - APPENDIX, JUNE 2, 1936 FHA F o r m NO. 771 U S GOVERNMENT PRINTING OFFICE: 193& EXTENSION OF KEMAEKS OF HON. BENNETT CHAMP CLARK OP MISSOURI IN THE SENATE OF THE UNITED STATES Monday, June i, 1936 FEDERAL HOUSING ADMINISTRATION—STATEMENT BY STEWART MCDONALD, ADMINISTRATOR Mr. CLARK. Mr. President, I ask unanimous consent to have printed in the Appendix of the RECORD a statement by Stewart McDonald, Adminstrator, on the achievements of the Federal Housing Administration. There being no objection, the statement was ordered to be printed in the RECORD, as follows: The Federal Housing Administration launched the Modernization Credit Insurance Plan, a temporary recovery measure, in August 1934. The Mutual Mortgage Insurance Plan, a permanent measure, was placed in active operation during the spring of 1935, when the States had paved the way with necessary amendments to their laws. Today, within less than 2 years of operation under the National Housing Act, the total business transacted under the two plans, representing more than 1,125,000 individual loans, amounts to $828,000,000, and during next August should pass the billion-dollar mark. It should be borne in mind that the money advanced under the Federal Housing Administration program is all private capital. The Administration makes no loans—it merely reinforces the tie between the borrower and the lender by providing credit insurance for loans meeting certain required conditions. Thus far, the confidence of the Government in the willingness and capacity of its citizens to meet such obligations has been fully justified, as the claims for losses under the insurance plans have been very small. MODERNIZATION CREDIT INSURANCE PLAN The modernization credit insurance plan gave new heart to the whole recovery movement by unlocking sources of credit in prac72760—36 (1) tically every city, town, and county. At the time the National Housing Act was passed less than 1 percent of the banks were either organized or prepared to make personal loans based on character and income of the type necessary to make the act function properly. Now banks that have made insured modernization loans represent over 85 percent of the total banking resources of the country. In all more than 6,000 banks, building and loan associations, finance companies, and other institutions have participated actively in making loans under the plan. More than 8,000 local better-housing committees and other voluntary agencies were stirred into action because of the credit that was made available, and have generated total modernization work estimated at $1,500,000,000. As a result of these activities millions of our people are now living in improved homes and thousands of wage earners in the durable-goods industries—which were the hardest hit by the depression—have received jobs or have had steadier work and bigger pay checks. The progress of the modernization credit insurance plan is shown by the following tables: Volume of modernization notes insured Monthly Cumulative Month Number August September October November December January February March April May June July 1 August September October November December January February March April 1 Amount Number Amount 1934 514 7,361 20, 886 23, 961 19, 936 $251, 595 3, 274, 425 8, 834, 565 9, 852, 992 8, 237, 006 514 7,875 28, 761 52, 722 72, 658 15, 310 12, 206 18, 644 28, 254 36, 374 41, 285 63, 418 71, 297 87, 970 81, 251 93,712 86, 026 6, 582, 034 5, 269, 524 7, 814, 722 11, 300, 416 14, 415, 746 16, 154, 052 21, 084, 565 24, 240, 035 30, 403, 178 27, 163, 130 31, 051, 675 28, 141, 069 87, 968 100, 174 118, 818 147, 072 183, 446 224, 731 288. 149 359, 446 447, 416 528, 667 622, 379 708, 405 82, 55, 82, 89, 26, 17, 28, 39, $251, 595 3, 526, 020 12, 360, 585 22,213,577 30, 450, 583 1935 37, 42, 50, 61, 75, 91, 113, 137, 167, 194, 225, 254, 032, 302, 116, 417, 833, 987, 071, 311, 714, 877, 929, 070, 617 141 863 279 025 077 642 677 855 985 660 729 280, 297; 326, 365, 408, 929, 557, 609, 591 613 361 492 1936 273 028 673 259 790, 678 337, 862 521, 022 845, 706 627, 748 928, 379 052, 131 1, 017, 638 Act amended to include notes of over $2,000. Volume of modernization notes by States, reported by address of borrower through April 1936 All notes State Number Alabama Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts M ichigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Alaska Hawaii Puerto Rico Canal Zone Total Amount 8,528 8,863 8,424 180, 823 5, 578 13, 451 1, 914 5,434 13, 780 11,762 6, 690 47, 467 26,511 10, 056 6, 545 9,654 12, 304 2,843 11,405 33, 799 47, 608 14, 337 5,597 30, 519 2,525 4, 340 1,971 3,260 68, 651 2, 105 150, 508 1,724 1,229 39, 211 11,590 16, 273 56, 727 6,593 4, 370 1,696 10, 837 33, 829 4,802 1,772 11, 443 35, 727 4, 183 10, 395 1,408 110 439 20 3 $2, 708, 512. 15 3, 224, 162. 09 2, 959, 814. 93 57, 665, 219. 75 2, 087, 266. 16 5, 406, 287. 64 807, 181. 23 2, 718, 312. 82 5, 639, 956. 03 4, 528, 394. 79 1, 994, 039. 42 17, 345, 512. 21 7, 705, 109. 14 3, 701, 455. 38 1, 961, 150. 23 3, 367, 901. 20 3,219, 157. 15 1, 091, 740. 13 4, 702, 379. 37 12, 470, 975. 71 13, 891, 344. 04 5, 457, 343. 12 2, 155, 325. 24 9, 253, 012. 98 1, 310, 969. 55 1, 484, 162. 66 860, 473. 90 1, 353, 334. 21 24, 657, 448. 31 1, 052, 413. 08 69, 198, 280. 15 2, 808, 246. 02 584, 797. 87 11, 871, 045. 17 3, 610, 306. 11 5, 221, 789. 59 19, 131, 364. 87 2, 679, 875. 40 1, 674, 747. 11 752, 348. 41 4, 057, 228. 23 11, 108, 322. 16 1, 795, 952. 91 661, 006. 92 4, 800, 421. 42 11, 836, 540. 61 1, 663, 161. 31 4, 295, 723. 33 718, 636. 27 95, 021. 17 241, 275. 85 18, 980. 00 4, 067. 00 1, 017, 638 365, 609, 492. 50 MUTUAL MORTGAGE INSURANCE Mutual mortgage insurance is now firmly tied into the financial fabric of the Nation through the amended laws of 47 States and through the amendments that have been made to the National Banking Act and other Federal laws. Financial institutions are finding that mortgage insurance, through the means which it provides for distributing the burden of losses that may arise from time to time, has substantially broadened the scope of conservative home-mortgage lending, just as fire insurance had already done in times past. Improved techniques of appraisal and of analyzing mortgage risks have been developed as an inherent part of the mutual mortgage insurance system. These methods are applied by the thoroughly trained professional underwriting staff of the Federal Housing Administration, and provide a primary protection to both borrowers and lenders as well as the Administration itself. The protection afforded lenders and borrowers is thus enhanced beyond the direct benefits provided by the presence of the mutual mortgage insurance! fund. Within less than a year's operation of the plan, home-mortgage credit, which had been frozen almost solid for several years, was made generally available to home owners on the most attractive terms in the history of the Nation. Formerly home owners, in order to obtain as much as 80 percent of the value, were often obliged to seek junior loans and were thus at the mercy of second-mortgage sharks. Now, however, one insured loan up to 80 percent of the appraised value may be obtained, and for a term up to 20 years, at a lower interest rate than formerly prevailed in many States for highly restricted short-term loans. Mutual mortgage insurance provides for a free flow of mortgage funds from centers of supply into communities where funds are normally scarce. It has effected a reduction in mortgage financing charges for large sections of the country, due to the uniform interest rate established by the Administration. Thus in several States where home mortgage interest rates averaged about 8 percent, or even higher, the Administration has insured loans amounting to many millions of dollars at an interest rate of 5 percent, plus onehalf of 1 percent service charge and the mortgage-insurance premium. There can be no dispute as to the need for improvement in the mortgage lending system of the country, nor of the timeliness of the mutual mortgage insurance plan as a response to that need. The shortcomings of the old system need no recital. It financed extensive overselling of houses at inflated values, to borrowers un- able to pay for them; further, first-mortgage lenders who apparently operated conservatively, frequently acted as parties to homefinancing transactions in which the second mortgages involved exorhibitant charges. There were, of course, many institutions that made fully amortized mortgages, usually ranging from 7 to 12 years in duration, and for amounts up to 60 or 75 percent of the appraised value. However, in many areas such amortized mortgages involved substantially as high charges and as onerous terms in other respects as a combination of a first and a second mortgage. A large proportion of mortgages wrere for relatively short terms and were not amortized; hence the coming of the depression led to wholesale embarrassment on the part of numerous lending institutions, for they could not, or would not, because of shrinking values, renew the old mortgages and borrowers were not in a position to make lumpsum curtailments. Hence, many institutions found home mortgages a frozen asset. Now, on the other hand, the insured home mortgage is being constantly amortized; it is readily salable, under ordinary conditions; and it is also discountable at Federal home loan banks, as well as being in part usable as collateral for advances at Federal Eeserve banks. The old system again failed to function properly during the period of deflation when a temporary wave of overcaution resulted in making reasonable credit unobtainable for many prudent prospective home owners whose support would have meant much to the home real-estate market. The load placed upon the Home Owners* Loan Corporation to take over approximately $3',000,000,000 worth of home mortgages, representing a million properties, testified to the magnitude of the breakdown. Increases in population and in the number of families, together with the present deficit in housing, are bound to result in a large revival in home-building activity during the next few years. It is of incalculable importance to the Nation that the major mistakes of the past be avoided in financing this program. The mutual mortgage insurance system is exerting a powerful influence in the right direction. I t is helping to raise home-building standards, including the proper layout and financing of new subdivisions, site planning, intelligent design, adequate standards for materials, and good workmanship throughout. It helps to bring the conservative buyer into the market by giving him adequate credit at reasonable terms. I t discourages financing of borrowers who attempt to buy beyond their means, and the exorbitant financing charges that frequently went with such transactions. It encourages each home owner to make a sound purchase within his means. The progress of the mutual mortgage insurance plan is shown in the following tables of mortgages accepted for insurance each month; i. e., the mortgages which the administration commits itself to insure. In the case of new construction, the actual insurance is not in effect until the building operations are complete and the home owner begins payment of the insurance premium. Volume of mortgages accepted for insurance Monthly Cumulative Month Number January February. _ March April May June July August SeptemberOctober November. December. January, _ February_ March April 1935 1936 Amount Number Amount 102 435 1,211 1,880 2,612 3,048 4, 112 5,010 5,300 6,673 6, 197 5,567 $514, 280 2, 136, 480 5, 101, 596 7, 926, 354 11, 109, 683 12, 264, 001 16, 872, 481 20, 671, 898 21, 285, 398 26, 163, 901 24, 515, 145 22, 033, 647 102 537 1, 748 3,628 6,240 9,288 13, 400 18, 410 23,710 30, 383 36, 580 42, 147 $514, 280 2, 650, 760 7, 752, 356 15, 678, 710 26, 788, 393 39, 052, 394 55, 924, 875 76, 596, 773 97, 882, 171 124, 046, 072 148, 561, 217 170, 594, 864 5,472 4,700 5,595 7,672 21, 19, 22, 31, 47, 52, 57, 65, 192, 211, 233, 264, 531, 182, 026, 243, 888 530 845 666 Total reported through May 23 Balance home mortgages in process Rejections 619 319 914 586 126, 309, 336, 579, 752 282 127 793 72, 862 293, 490, 861 36, 456, 179 83, 825, 435 Total home mortgages selected for appraisal 413, 772, 475 Volume of mortgages accepted for insurance through April 1936 Total New construction only State Number Alabama. __ Arizona Arkansas California __ Colorado. Connecticut Delaware District of Columbia 1,051 502 1, 164 8.070 441 570 214 1, 133 Amount $3, 268, 799 1, 626, 244 2, 873, 720 34, 582, 434 1, 335, 474 2, 927, 970 1, 055, 600 7, 337, 790 Number Amount 279 $1, 059, 009 143 614, 452 259 856, 840 2,844 14, 024, 002 354, 180 87 263 1, 400, 635 53 270, 000 264 1, 985, 200 Volume of mortgages accepted for insurance througU April Total 1936—Continued New construction only State Number Florida Georgia Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts.. Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina. North Dakota. _ Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina.. South Dakota. _. Tennessee Texas Utah Vermont Virginia Washington West Virginia. _. Wisconsin Wyoming Alaska Hawaii Total 1,092 1,041 352 2,611 2,059 757 1,818 717 575 217 923 1,062 2,911 1,028 1,201 2,932 158 406 183 407 4,608 271 3,046 779 289 4,962 918 331 4, 134 312 232 315 1,258 2,855 875 348 1,458 1,081 307 1,010 492 39 71 Amount Number Amount $4, 346, 837 3, 898, 494 1, 059, 860 11, 404, 080 7, 027, 341 2, 526, 879 4, 833, 507 3, 129, 160 2, 255, 960 661, 780 3, 568, 790 5, 422, 918 12, 613, 630 3, 393, 094 3, 366, 222 12,611,665 477, 261 1, 344, 520 653, 905 1, 449, 751 23, 524, 445 895, 675 14, 654, 615 3, 006, 584 785, 705 21, 261, 805 3, 105, 477 845, 525 16, 810, 065 1, 352, 680 855, 908 820, 480 4, 671, 345 10, 313, 325 2, 698, 735 1, 189, 165 5, 776, 911 3, 108, 255 1, 283, 785 4, 981, 931 1, 189, 397 119,060 275, 235 635 $2, 764, 502 382 1, 545, 994 534, 000 147 553 3, 296, 285 305 1, 505, 298 559, 295 125 372 1, 334, 670 799, 494 148 639, 355 156 124, 400 28 652, 750 117 729, 360 113 913 5, 273, 410 955, 778 246 454 1, 503, 858 537 2, 957, 440 123, 491 30 294, 450 66 167, 175 40 124, 015 30 ,657 9, 154, 834 384, 700 96 ,672 8, 335, 430 302 1, 357, 960 233, 450 65 957 5, 662, 829 199 1, 019, 380 227, 750 71 659 3, 664, 406 260, 630 59 320, 939 80 206, 300 56 967, 225 225 ,157 4, 792, 898 579, 900 159 189, 450 38 452 2, 004, 380 998, 970 276 482, 450 91 485 2, 646, 736 226, 112 68 16, 800 6 221,215 57 65, 586 264, 579, 793 18, 476 90, 404, 282 The application of the Mutual mortgage insurance plan to largescale housing projects is a most promising phase of the program, for the financing of apartments and other rental quarters often has been of an unsound character. There has been a reluctance of responsible lenders to make high-percentage loans, particularly for large projects where the amounts tied up are considerable; most of 1he largest rental projects in the past were for families of high in- comes, and many of them were financed through misleading appeals to small investors. Through its power to insure mortgages on large-scale housing developments for persons of small income where the owner is a limited dividend corporation, the Federal Housing Administration is encouraging private capital to enter the field. Particular emphasis is given to the matter of sound planning and financing, and to responsible, efficient management. To date 21 projects involving a total cost of nearly $42,000,000 and mortgages amounting to $33,000,000 have been approved and commitments to insure mortgages have been issued. In addition, proposals are under consideration for insurance of underlying mortgages amounting to $104,000,000 on 52 projects, all of which have undergone preliminary examination. They range in amount from mortgages of around $100,000 up to $10,000,000, the limit allowed by the law, with the average around $2,000,000. Additional applications indicate the possibility of construction running into several hundred million dollars per year. ENDORSEMENTS OF PROGRAM The activities of the Federal Housing Administration have received the most whole-hearted endorsement from groups having widely varying interests. For example, a report approved by the Chamber of Commerce of the United States at its latest annual meeting stated : "The elimination of the second mortgage by the mutual insurance of first mortgages up to 80 percent of the value of the property is an experiment which is worthy of further trial. Accompanied as it is with the assumption of a contingent liability on the part of the Government, there are reasons to believe that this experiment will become an increasingly important factor in the next 2 years in the recovery of small-house construction. The plan definitely reduces the costs of home ownership to the consumer or purchaser who is not in a position to make a down payment of more than 20 percent; that is, to the buyer who ordinarily would need a second mortgage in order to acquire a home. Since second-mortgage financing facilities are not at present generally available, the plan provides an immediate means of obtaining such funds as a part of a single mortgage." Again, the president of the American Bankers' Association, Mr. Eobert V. Fleming, stated to a group of bankers: "I desire to call your attention to first-mortgage amortized loans on real estate which can be made under the provisions of title I I of the National Housing Act. This type of loan is particularly desirable, as there is no industry which can do more to stimulate employment and help in the stability of the country than the construction of homes. Furthermore, title I I loans assist in making unimproved real estate liquid, thus supplying an additional purchasing power. I believe the campaign of education which is beingcarried on in connection with the provisions of the National Housing Act as to the principles of amortization and standardization of appraisals will be most helpful." A prominent building and loan association official stated: "The Federal Housing Administration loan is really the 1935 model of the building and loan mortgage. * * * Our association is well satisfied with the reception of the Federal Housing Administration insured mortgage plan by the prospective borrowers. We intend to take just as many loans on this plan as our funds will permit. Our association is quite willing to make loans on the 20-year plan backed up by the Federal insurance giving further protection to the investments of its savings shareholders." Mr. William Green, president of the American Federation of Labor, in a message addressed "to the men and women of labor", has stated: "The American Federation of Labor, ever anxious to provide employment for the workers and to improve the conditions under which they and their dependents live and labor, unequivocally endorsed the program of the Federal Housing Administration in its recent convention in San Francisco. "The Federal Housing Administration has now made effective those provisions of the National Housing Act under which loans for new construction and the purchase of existing homes may be insured, thereby making possible the freeing of billions of money so long withheld from the building industry on terms fair to the borrower and safe to the lender, and opening the door of employment to millions long idle. "In conformity with the action of the San Francisco convention, I now urge all of our people to get squarely behind the Federal Housing Administration and the building trades in their efforts to revive building and to provide better and healthier housing under these provisions of the National Housing Act. "The ramifications of the better-housing program are almost infinite. Directly the millions employed in building and in the production and transportation of building materials will benefit. Indirectly those normally engaged in the production and sale of all types of goods and services will benefit. "The building dollar is a busy dollar. It is not 'hidden in a bush' or buried in a vault. From the pay envelope it speedily finds its way into the purchase of clothing, of food, of the thousand and one things and services we all require or wish in our daily lives. In 10 turn it makes it possible for those producing, transporting, and selling these goods and services to satisfy their own wants and needs and give employment to others." Such comments have their parallel in many hundreds of commentatory editorials coming from practically all sections of the daily and periodical press. CONCLUSION The rise in residential building which has been so marked during the past 12 months could not have proceeded as it has without the constructive help of the mutual-mortgage-insurance plan. There was an increase of 172 percent in the dollar amount of residential building permits in 1935 over 1934, and a further increase of 142 percent during the first 4 months of 1936 over the same months in 1935. Reports of shortages in skilled building-trades labor have been received from many points in different regions of the country. In one city after another housing has come out of reverse and once again is moving forward toward better living standards. In concrete terms, hundreds of thousands of families are buying or building homes this year, or are refinancing their present homes at lower cost, because they can obtain credit safely and on more reasonable terms than ever before. They are achieving their aspirations for better homes in which to live and to raise their children, and they are able to do it because of the insured mortgage system. The resulting home building is furnishing a powerful stimulus to recovery in business and employment, and is rightly regarded as holding unique possibilities as a force for continued prosperity in the future. The good work must be pressed vigorously on. The present housing deficit means that there is lost ground to be made up, and demands for new housing, including rental projects, will crowd in faster than we realize with each further step in the recovery of employment. There must be no let-up, no relaxation of effort in the movement to establish home financing and the financing of largescale rental projects on a thoroughly sound basis. It is unthinkable that the Nation should fall behind when the ground work for advance has been laid so ably through the far-seeing action of Congress in creating the Federal Housing Administration. o
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