The Washington times., 1937-11-29

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standard Of living for the coun-
try as a whole.
The problem of reducing costs
to a point where larger volume,
longer employment, and higher
annual earnings are possible is
one that must be solved in ma
jor part by the building indus
try itself. The Government,
however, can take the initiative
by bringing about a reduction
of financing costs, by making
it easier for families of mod
crate means to buy or rent new
houses, and by providing mech
anismS to make it practicable
for private enterprise to engage
in large-scale housing operations
for the mass market.
ENLARGE FILA ACT
In order, therefore, that Gov
eminent may give the fullest
encouragement to a broad re-
vival of building, I recommend
that the Congress adopt at this
time measures to facilitate the
financing of every type of hous-
ing construction, whether for
sale or for rent, and ranging
from the small house to entire
residential communities and
large low-rent apartment build
ings. In addition to measures to
stimulate new construction, l
recommend that provision be
made for an extensive program
of repairs and medernization.
AS a practicable means of en-.
couraging and facilitating a
more effective operation of pri.
vate enterprise and private cap
ital in the housing field, I am
suggesting enlargement Of the
framework of the National
Housing Act in the light of &C
tual experience. This legislation,
enacted by the Congress in 1884,
provided a new financial mech
anism applicable to all types OF
lending institutions that make
loans for housing purposes. En-.
abling legislation giving effect
to this new mechanism was sub
sequently enacted by all the
states. Within the limits Of the
types of housing to which it ap-
plies. it has proved to be both
popular and practical.
COST NEGLIGIBLE
Under the national housing
act the Congress established the
Federal Housing Administration,
which insures mortgages on GER
tain types of housing, but itself
makes no loans. The agency is
designed to become self-sustain-
ing through the operation Of a
mortgage insurance fund, into
which premiums are paid by Dor
rowers who obtain loans under
the provisions of the act from
private lending institutions.
An ultimate guaranty Of loans
that may default is given by the
Federal Government, but this
guaranty becomes operative only
in the event that recoveries from
the sale of defaulted properties,
together with all the monies in
the insurance fund, should be in
sufficient to pay the insured
claims. Hence, even If any cost
should result to the Government
because of this guaranty, it
would be negligible vhen meas
ured by the volume of construc-
ton and employment induced by
the fact that the guaranty is
there should it ever have to be
availed Of.
The benefits of financing
under the national housing act
apply to two main classes of
ransactions-namely, those in
which a single house becomes
security for a loan and those
in which a limited-dividend COM
pany obtains a loan in order to
develop a rental housing project.
The amendments which I am
suggesting are of three kinds:
Cd To effect further reductions
in financing costs; 90 To ex-
tend the insurance Of mortgages
to types of housing operations
not now adequately provided for
in the act; 90 To make the
funds of institutional and indi-
vidual investors more easily
available for the financing Of
large-scale operations.
FINANCING BIG COST
Because it takes the average
buyer of a house or investor in
housing a long time to pay for
the property, the cost of financ-
ing is in the long run one of the
largest items in housing costs.
In the case of rental housing it
is a determining factor, first
in whether construction shall be
undertaken at all, and second in
arriving at the scale of rentals
to be charged.
Institutions making loans to
be insured by the Federal Hous-
ing Administration are now per-
mitted by regulation to make an
interest charge up to 5 per cent
aru a service charge of u Of l
per cent. or a total of 512 per
cent per annum. 1t is proposed
to reduce this to 5 per cent net
by amending the administrative
regulations.
AS a means Of further reduc-
ing the cost to the borrower,
however, I would ask the Con-
gress to authorize the Federal
Housing Administrator to fix
the mortgage insurance pre-
MUM as low as u to / per cent
m the diminishing balance of