STATEMENT OF R. G. HUGHES, FIRST VICE PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS Mr. HUGHES. I recently visited and personally inspected conditions in various cities, in most of the cities and towns of Oklahoma and Texas and New Mexico, in the last 2 or 3 weeks. Acting in my capacity as first vice president of the National Association of Home Builders and chairman of its legislative committee, I have by telephone, wire, and correspondence contacted builders in practically every section of the Nation. Last week I attended a regional meeting in Amarillo, Tex., of approximately 300 builders in the 3 States mentioned above-Texas, Oklahoma, and New Mexico. At this time I would like to tell you about the way we have been handling our financing and the problem we are now encountering. A major portion of the building in the Southwest during the past 12 months has been financed through some variation of what we call "warehousing." Warehousing has kept us building. The large builder and the small builder alike. The mortgages in the Southwest do not sell for the same price as mortgages in New York and New England; in fact, mortgages in the Panhandle of Texas where I operate and it is a rapidly growing and relatively new industrial areasell for about a point less than mortgages in Houston, Dallas, Fort Worth, and San Antonio, and those mortgages in San Antonio and Dallas and Fort Worth sell about 2 or 21⁄2 points less than they do in New York. Most builders in the Southwest borrow construction money directly from commercial banks at 5 percent simple interest condition upon a takeout, or a firm commitment from a separate lending institution to buy the permanent mortgage. Warehousing agreements have been provided us with that "takeout" in order for us to get construction money. This is in contrast to the generally accepted procedure in the North, where one mortgagee furnishes both the construction money and finally purchases the mortgage. Warehousing agreements allow us to borrow from banks by pledging our final mortgages as security. We then have a stipulated period of 6 to 9 or 12 months to go out into the market and sell the mortgages at the very highest prices obtainable. By selling to individuals, small banks, large and small insurance companies in whatever amounts we can get them to buy, we have been able to sell the loans at a much better price than if we had been forced to sell on an advance commitment basis. The fees and charges order issued May 18 specifically prohibits the use of all forms of warehousing agreements; therefore, practically all building in our area will be shut down as soon as we finish the housing on which warehousing financing was arranged prior to May 18. There have been no new programs financed. I have here the evidence to show that is correct by telegram, and I have Mr. O'Donnell here from Houston, who will testify for Houston specifically. A few building and loan companies in our area have announced that they are coming back into the market, but on a very limited basis. In most cases, it has been 20 percent down with 20 years to pay, and most of the building and loan companies up in the Panhandle of Texas say they would much rather loan on a conventional basis and they are charging 51⁄2 to 6 percent interest. About 60 percent of the builders in this recent meeting in Amarillo said they would be shut down by August 1 unless the fees and charges order is rescinded, or they find some new untapped source of mortgage money. I will be personally forced to lay off about 150 men, most of whom have been working for me over 10 years, by September 1, if I cannot legally use warehousing, or find some other method of financing my program. At this particular time I would like for Miles Strickland to tell you firsthand about things going on in Houston. Mr. AYRES. Before Mr. Strickland takes the stand, what has been the average percentage of discount in your area? Mr. HUGHES. I can speak for myself. By having the loans up for security and not being forced to sell them immediately, I have been able to shop around and sell around and use whatever sales ability and ingenuity I have, and thus far I have been very fortunate. The biggest discount that I have taken has been 1 point. However, I will say that I have a good bit on hand right now that I doubt I can sell that well; in fact, I know that I cannot. The point that I am trying to make is, by keeping them on hand and not having to sell them on short notice or immediately, and having 6 or 8 months in which to sell them, we can make better deals than if we had to go into the market immediately. Mr. AYRES. Thank you. Mr. STRICKLAND. We are now building, or were building, $1 million worth of GI houses consisting of 96 brick homes. We started and have about completed and sold 25 percent of them, some 27 or 28 houses. We do not have a market at all for the paper under any conditions. We are now delivering the houses, and we are unable to sell the paper for any price. We cannot because of the regulations. It puts us in this position, that now we are and will be in the next 2 or 3 weeks the owners of approximately $250,000 worth of GI paper guaranteed by the Government of the United States, and we cannot borrow from the banks enough money to come to Washington and tell you men about it. That situation also exists with builders whom we have financed out of our lumberyards. They are all closing down. Our operations now consist of probably 15 men. We have been closing down for 4 weeks. We are in a position where we have not borrowed against these properties, and we will just have to keep the paper until we can do so. The reason we operate like that is, as Mr. Hughes has said, if you can shop around with your mortgages you can always get a better price. Today, A company might buy them, but B company might buy them in 60 days at a better price. The building in Houstonand I have flown over it in the last 5 or 6 days, for that is the way we look at it is only being done by the people who have had prior firm commitments to sell this paper. Mr. AYRES. If the regulation of May 18 of the Veterans' Administration should be rescinded, then you would be able to sell your paper; is that correct? Mr. STRICKLAND. Then we will be able to sell the paper on the market at such price as we in our opinion deem that we can dispose of, or make money, or lose money on it. Mr. AYRES. What is the average discount you had to take? Mr. STRICKLAND. I paid a point and a half. I think that is the most I have paid. Mr. TEAGUE. Mr. Strickland, would you be for recommending that this May 18 order be rescinded and permit the discount to continue? Mr. STRICKLAND. Yes, sir. Mr. TEAGUE. If you were in Mr. King's place and the builders would begin to advocate discounts, would that indicate to you that maybe the appraisal system was too loose, too lax, and not tight enough? Mr. STRICKLAND. I do not think you will find anywhere in our area anybody taking any substantial discounts, because the appraisal system there is rather consistent. If would be impossible to take any 6 or 7 or 8 points on it, because you would lose money. Mr. TEAGUE. Do you believe this group can draw up rules and regulations on fees and charges that we can agree on and everybody understand them without the existence of a gray market, black market, or any other kind of offcolor market? Mr. STRICKLAND. I do. Mr. TEAGUE. I surely hope you people will help us, because we want to do it. Mr. AYRES. Have you anyone else? Mr. HUGHES. I would like to put into the record some telegrams, if it would be all right just to put them in the record without reading them. Mr. AYRES. Yes. (The telegrams above referred to are as follows:) E. M. SPIEGEL, Albuquerque, New Mex., June 13, 1953. President, National Association of Home Building: There are 10 percent less VA, FHA, and conventional houses under construction June 1953 than June 1952. There are very few unsold completed homes. Most builders have some coverage with prior commitments but do not have enough coverage to continue construction through the summer under present conditions. Anticipate 30-percent_reduction in labor force within 30 days and 80 percent reduction in 60 days. Money market at complete standstill. Situation continuing to grow. Rose in April 1953. There were 28,000 construction workers employed in New Mexico. There were 30,000 construction workers employed in April 1952 in New Mexico. Nine out of ten builders plan only to finish houses under construction and then will be forced to stop. The first 2 weeks of June the Edward H. Snow project laid off 90 construction workers due to the uncertainty financing of their future projects. The American Builders plan to lay off 35 men during the first 2 weeks of June. The F. & S. Construction is planning to discontinue its operations in Albuquerque and New Mexico entirely during the next 6 weeks. Mr. Dale Bellamah plans to lay off approximately 40 construction workers during the next 2 weeks. These are a few examples collected in a hurry to show you the impact New Mexico housing is suffering from financing uncertainties. The Southwestern States have been virtually stopped due to the financial situation and there is no foreseeable change. This condition applies to Arizona, Nevada, New Mexico, etc. JOHN M. DICKERMAN, EDWARD H. SNOW, Secretary, Albuquerque Home Buildings Association. TULSA, OKLA., June 10, 1953. National Association of Home Builders, Washington, D. C. Re Dick Hughes request: Number of houses under construction June 1, 1952: 400 VA, 600 FHA, 200 conventional. Houses under construction June 1, 1953: 250 VA, 300 FHA, 200 conventional. Number employed housing construction June 1, 1952, was 6,000. Number employed same date this year, 3,750, with reduction figuring at 2,250. Number expected to be laid off by July 1, 1953, if present May 18 VA regulation covering "fees and charges" not revised or rescinded is 2,813. Home construction in Tulsa grinding to virtual standstill, with 75 percent decline expected by July 1. ED F. RICE, President, Tulsa Home Builders Association. E. M. SPIEGEL, DALLAS, TEX., June 13, 1953. National Association of Home Builders, Washington, D. C.: Greater Dallas under construction June 1952, 1,395 single-family units 959 being residences. Week June 6, 1953, under construction 2,002 single-family units, 1,600 being residences. Best estimates formed results builders survey indicate June 1952 under construction, 650 VA; 265 FHA; 44 conventional. June 1953, 679 VA; 725 FHA; 205 conventional. Unable find any builder who been able obtain VA firm commitments subsequent May 18, though several report they obtained them prior that date in May under customary discount practice. About 1,600 units scheduled completion within next 30 days. Homes construction employment June 1952, 16,870; June 1953, 17,851. President Brown of DHBA estimates on basis survey of builders homes construction workers be reduced by 3,000 July 1; 5,000, August 1; and total of 7,000, by September 1, 1953, unless VA directive rediscounts be rescinded. Impossible for above statistics to indicate harm to Dallas County Building under directive. Extent of this harm and damage can be reflected now only in number of planned projects for period 30 to 120 days following May 18 which now either dropped entirely or frozen hoping for developments favorable. Only projects involving VA on which work now proceeding those with loan commitments prior May 18. Examples: Cntex Construction Co. has dropped or frozen projects for 276 units at San Antonio, 612 units at Dallas which were in advanced planning for midsummer 1952 starts. Another major VA builder, Vernon & James Smith Co., has 225 VA under construction, commitments having been made May 7, but see no possibility any new starting after that. Lingo & Bailey, another major VÀ factor, shutting down operations with project currently near completion, plans no operations unless or until funds available. Longhorn Construction Co. has started planning of its operations to exclude anticipation VA. Builders here been advised by finance industry will be no chance to place anything this area at par. Harold Weill, large VA builder, advised won't attempt any more VA. HOME BUILDERS ASSOCIATION OF DALLAS, INC. Mr. SPIEGEL. I will say the system is very general all throughout that part of the country. Mr. AYRES. As I said before, you have called to our attention through telegrams and individual letters and testimony here today that there is no doubt that there is a serious problem confronting us, but just to say there is a problem, as Colonel Teague said, and not do anything about it does not help you and does not help the veteran. As I stated previously, the primary purpose of this committee is to assist the veterans to get housing, and if you have any suggestions of ways of permitting them to do so, we will be very glad. Mr. SPIEGEL. We would like very much to have an opportunity of discussing with you and the other members of the committee our suggestion for a revision of the May 18 regulation. Mr. TEAGUE. May I suggest that Mr. King said in his testimony that a lot of these things are local, and you tell us they are local. Then we want you to tell us what the local people want that would solve the thing put in this regulation. Mr. SPIEGEL. There have been an awful lot we will be able to suggest to you tomorrow, I am sure. Mr. AYRES. Will you be here tomorrow? Mr. SPIEGEL. Yes; I can be here. I will make it my business to be here. Mr. AYRES. I think it might be advisable. Mr. SPIEGEL. If I can be of any assistance, I will be only too happy to do it. Mr. AYRES. I think it will be well, since Mr. King will be testifying. Mr. TEAGUE. Mr. Spiegel, of course, you know this bill came out of another committee. Mr. SPIEGEL. That is correct. Mr. TEAGUE. And you know that trying to change the law is going to be difficult. Mr. SPIEGEL. I suggest it is not necessary to take any legislative action to correct it. We think Mr. King can do it with the suggestions we have here. Mr. BONIN. Do you mean we can do it under section 504? a suggested revision here. We have Mr. BONIN. You do not believe 504 should be eliminated? Mr. SPIEGEL. No; we are not suggesting that 504 be eliminated. Mr. TEAGUE. What do you think about taking the limit off of interest rates? Mr. SPIEGEL. We do not support that. We think for the long pull that the interest rate can be adjusted by this matter of the yield or discount-the discount factor. We think that is the only way to do it. Obviously, when the interest was raised from 4 to 4.5, it was hoped it would not be necessary to have a discount, but these other factors of the money market have caused the need for continuing some discount operations which will attract money in the mortgage-lending field. Mr. TEAGUE. Then you people would like Mr. Durban to have the authority to arrange to limit the fees and charges? Mr. SPIEGEL. Yes; we support that. Mr. AYRES. Now, we not only have people from Texas, but there is a gentleman here from Florida who wishes to be heard as an individual builder. State your full name and your business affiliation. STATEMENT OF MORTON B. TURBOW, PRESIDENT, ALLIED HOMES, INC., JACKSONVILLE, FLA. Mr. TURBOW. I am Morton B. Turbow, president of Allied Homes, Inc., of Jacksonville, Fla. I have been a lender and everything else you have been talking about today. Mr. AYRES. And a speculator? Mr. TURBOW. A speculator, a promoter, and everything. I am here not representing any association or organization; I am here at my own expense, because I have been very successful in doing some of the things this committee is trying to have done. I have been very successful, gentlemen, in providing GI loans in small communities in the State of Florida, in the same type of com-c munities where you do not have loans in Texas and do not have loans in Oklahoma-in towns of 4,000 or 5,000 population in the rural areas |