The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1934-08-11
HOUSING ACT is
EXPLAINED BY
CONGRESSMAN
EIIenbogen of Pennsylvania
Says Home Is Peg of
Recovery.
BY REP. HENRY ELLENBOGEN
Written for The indianapolis Times

Written for The Indiana polls Times
The new national housing act
singles out the home-its financing,
construction, upkeep, repair-as the
peg on which to hang program Of
national recovery.
Its purpose is to stimulate the
flow of private capital into real
estate channels, thereby reviving a
practically moribund construction
industry and furnishing employ
ment to a substantial percentage Of
workers.
Part one of this program calls
for the modernization, alteration
and repair of existing property.
John Jones goes to his bank, trust
company or other financial insti-
tuition and asks for loan up to
81 900 to build, let us say, a sun
porch, or a garage, or a cement
cellar. The governments induce
ment to the bank is a guarantee OF
20 per cent of such loans-not OF
individual loans, but Of the total
amount Of loans Banker Smith will
make.
Billion Dollar Total
The governments total liability is
5000 100000 in this part of the pro-
gram, making a total of S1,000,000,-
900, which can be placed in circu-
Iation, most of it for wages.
The question is whether one bill
lion dollars will be coaxed from hid
ing in bank vaults. I venture the
opinion, based on the banks past
performances, that it will not. For
the last five years banks have been
turning down applications for just
such loans-even on unencunbered
properties free of liens and mort
gages-and it is questionable whether
underwriting 20 per cent OF the
possible losses for such loans Will
make the proposition sufficiently
attractive.
Another argument which has been
advanced for the repair provisions
of the housing act is that it will put
money in general circulation, as did
the governments CWA and federal
relief programs. Overlooked is the
fact that it draws the money out OF
circulation rather rapidly, since re-
payments on these loans begin i'm
mediately. In the final analysis, the
end result will be a reduction OF
general buying power, plus an addl-
ton to an already heavy debt struc-
ture.
Repair No Panacea
I am not presuming to condemn
the housing act. 1t is a measure OF
the first magnitude, but it is this
very Importance which makes 1t
necessary that the problems the act
tackles, and the several means it
presents for their solution, be scru-
tinized most carefully.
No single piece of legislation will
produce a panacea for all our ills,
and 1 do not like to see this act,
or any other, hailed as such,
The sections of the act having
to do with insurance Of mortgages
on new and existing structures are
intended to be much more produc-
tive.
For the last few years the amount
of money loaned by banks and other
financial institutions for home build
ing has been negligible. Formerly
a substantial part of a banks bust
ness was centered in realty and
mortgage leans, but these institu-
tons have been limiting themselves
to little more than the mere rou-
tine of banking. In order to start
the wheels of construction, it was
first necessary to start the cogwheel
Of financing.
Banks Protected
The act has accomplished this
through permitting the lender to
insure the mortgage he has received
in exchange for his loan with the
government, at a small interest
charge paid by the borrower. IN
der the act, the banking institution
surely need hesitate no longer to
make home loans, since the finan-
cial institutions not only are insured
against loss, but need not even pay
for that insurance.
This section of the act has great
potentialities, and if carried through
will be the strongest stimulus the
construction industry has received
thus far.