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proceeds of the sale of any security hereafter issued under the Second Liberty Bond Act as now in force or as hereafter amended, and the purposes for which securities may be issued under the Second Liberty Bond Act as now in force or as hereafter amended are hereby extended to include such purposes.

"(d) The Administrator shall from time to time cause to be deposited into the Treasury of the United States, to the credit of miscellaneous receipts, such of the funds in the special deposit account referred to in subsection (b) hereof, as in his judgment are not needed for the purposes hereof, and after the last day on which the Administrator may purchase loans under this section, he shall, with due allowance for outstanding commitments, cause to be so deposited all sums in said account, and all moneys received thereafter, representing the repayment or recovery of the principal of obligations purchased pursuant to this section. Interest collected by the Administrator in excess of the amount payable by the Adminis trator to the Treasurer pursuant to subsection (b) of this section, together with any miscellaneous receipts or credits the disposition of which is not otherwise provided for herein, shall constitute a reserve for payment of losses, if any, and expenses incurred in the liquidation of said loans. Without regard to any other provisions or limitations of law or otherwise except the provisions of this title the Administrator shall have authority in carrying out the functions hereby or hereunder vested in him to exercise any and all rights of the United States, including without limitation, the right to take or cause to be taken such action as in his judgment may be necessary or appropriate for or in connection with the custody, management, protection, realization, and liquidation of assets, to determine the necessary expenses and expenditures and the manner in which the same shall be incurred, allowed, paid, and accounted for and audited, to invest available funds in obligations of the United States, to make such rules, regulations, requirements, and orders as he may deem necessary and appropriate, and to employ, utnze, compensate, and delegate any of the functions hereunder to, such persons and such corporate or other agencies, including agencies of the United States, as he may designate.

INCONTESTABILITY *Sec. 512. Any evidence of guaranty or insurance issued by the Administrator shall be conclusive as to the eligibility of the loan for guaranty or insurance under the provisions of this title and as to the original amount of such guaranty or insurance, except that nothing in this section shall preclude the Administrator from establishing, as againt a holder, defenses based on the fraud or material misrepresentation of such holder, and except that the Administrator shall nut, by reason of anything contained in this section, be barred from establishing, under regulations in force at the date of such issuance or disbursement, whichever is the earlier, defenses to payment of any part of the guaranty or issuance."

Senator MORSE. The hearing will come to order. The Subcommittee on Veterans Affairs of the Senate Committee on Labor and Public Welfare meets this morning to hold public hearings on S. 2790, introduced by Senator Jenner, a bill to amend the Servicemen's Readjustment Act of 1944, as amended, and for other purposes.

The first witness is Mr. H. F. Dunton, president, Veterans Organization Council. He is present, and we will hear him at this time.

STATEMENT OF H. F. DUNTON, PRESIDENT, VETERANS ORGANI.

ZATION COUNCIL, ALTADENA, CALIF.

Mr. DUNTON. Mr. Chairman and gentlemen, my name is H. F. Dunton. I am president of the Veterans Organization Council, Altadena, Calif., representing the major veterans organizations of Los Angeles, Calif. I am here in the interest of the restoration of the secondary market for the GI home loans, covered under title III of the Servicemen's Readjustment Act of 1944, as amended in December 1945.

I appreciate the opportunity, Mr. Chairman, in the interest of the veterans of this country, to appear in an effort to have established the secondary market for what is termed the GI home loan. If you will

recall

, during the war we felt that the veteran at least was entitled to a chance to acquire a home on terms which he could afford to meet. That thought expressed itself in an act of Congress entitled "An amendment to the Servicemen's Readjustment Act of 1944.” In 1945 it became effective, and provided long-term home loans for veterans, the term of the loan being 25 years, repayable in monthly installments with interest at the rate of 4 percent per annum. The significant feature of this home loan was that it required no down payment. In other words, it represented 100 percent financing, upon the basis of reasoning that the young veteran had accumulated no funds with which to make a down payment on a home. That was the intent of Congress as expressed in that act. Now, let us see what happens to it.

As long as the secondary market existed in the RFC Mortgage Company, the plan went along very fine. As a matter of fact, it was so successful that up to the time, a very recent time I haven't the latest figures from the Veterans' Administration, but I see Mr. King here, and perhaps he can give us the figures on it-I think there were 1,200,000 loans made to veterans on that plan. The significant fact about the whole plan is that less than half of 1 percent of the total loans made any complaint about faulty construction and all these things you hear about in the newspapers. Those are records in the Veterans' Administration which I am sure Mr. King will confirm.

Now, gentlemen, that is the finest home loan plan that was ever proposed or put into operation in this country. It is not only a good home loan plan for veterans, but it is a good home loan plan for all young men, and if we had that plan in effect throughout the country today we could increase home ownership to the point where communism would no longer be a threat to this country. I, as a veteran, would be willing and anxious to enlist the aid of the veterans in getting the plan established, not only for veterans but for all young men.

Senator MORSE. On that statement, Mr. Dunton, I can say that we share the same point of view, that home ownership, ownership of individual homes by our citizens, is perhaps the best defense we have against communistic activities in this country.

Mr. DUNTON. Indeed it is, Senator. In fact, it is so necessary that we have this plan that I may say that this marks only the beginning of the fight. If we fail to secure what we seek here today, I pledge you that my time will be given as a leader of this movement in California until we reach that goal. That was a promise made to

young veterans, a promise that was wiped out by an action of Congress on July 1, 1947, and I think the Congress did not understand the implications of what they did at that time. I am quite sure they

Upon reading the testimony before the Congress at the time, and the leadership that was responsible for defeating this plan, who are going to have to answer to the veterans for that action one day, and that day is not far away-I do not think the Congress fully understood what they were doing. I am sure they would not have taken that action if they had understood it. I am sure that the Congress of the United States intended to keep its promise to the young men, and we are here today to see if we cannot remind them of that fact. And as a matter of fact, we have gotten along fairly well up to this point. Our bill was introduced in the House, was passed out by unanimous vote of the Committee on Veterans Affairs, and was

these

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blocked by a combination of sordid political and financial interests on the floor of the House on the following Monday, and now

Senator JENNER. How was it blocked? What was the objection to the bill?

Mr. DuNton. No objection was stated. It was brought up on the Consent Calendar, and there was merely objection raised, and it was put off the calendar, so it is now in the Rules Committee.

Senator JENNER. Why should anyone be opposed to it? Are the financial interests of the country opposed to it?

Mr. DUNTON. It would not surprise me at all if the banking interests of this country, being anxious for an increased interest rate and not courageous enough to come out directly for it, have come through the back door by trying to kill the GI home loan plan.

Senator JENNER. Do you have any evidence of that?

Mr. DUNTON. I do not have any concrete evidence, but by bits and pieces of contact and talking with various people whom I have met since I came to Washington, I have come to the conclusion that the banking interests, acting by and through the realty front, or the real estate lobby, are primarily responsible for this situation today. I think that is the case. I cannot prove that, but from contacts I have made I believe it to be the case.

Senator JENNER. You speak of 1,200,000 loans having been made under the original bill. How much money did that involve?

Mr. DUNTON. The total was about 7 billion dollars.

Senator JENNER. And what has happened since to the GI loans as a result of this action of Congress, which you think Congress unirtentionally took, which took away the secondary market for the Re construction Finance Corporation?

Mr. DuNTON. As a result of that action, the lending institutions, having lost their market, or lost the Government-sponsored pool to which they could sell these loans, have stopped making the loans. That is particularly true of the small banks and the savings and loans associations throughout the country. And I happen to know posttively that the largest bank in the West, the Bank of America, ha. made the plan practically inoperative because it will not only take only the choicest applications for loans, but it will require a down payment, which is in excess of that contemplated by the GI Act.

Senator JENNER. No down payment is contemplated under the art

Mr. DuNton. No; it was 100 percent financing contemplated by the GI Act. The Bank of America is on record as having stoppen making the loans. That I know. The net effect is that they are not making GI loans, and I understand—I do not have the latest figures available, perhaps Mr. King has-he is here, and he can explain those figures- I understand that the volume of the GI home loans hadropped off about 50 percent, naturally, and in some cases, in som areas, and I know that in our area it has dropped off more than that, around 70 percent.

Senator JENNER. In other words, this bill would only make it pois. sible to carry out the intent of Congress and the promise made to these GI's at the time they were in the war? Is that right?

Mr. DUNTON. Yes, sir; that is right.

Mr. JENNER. And the banking industry of America is not forced or compelled to make these loans if they do not want to.

Mr. Dunton. No, sir; there is no mandate that they must make them.

Mr. JENNER. It is purely voluntary?
Mr. Dunton. It is purely voluntary, discretionary.

Senator JENNER. In view of the fact that we are willing to assist and aid people with our money and our national wealth all over the world, do you see anything inconsistent with making good the promise made to the GI's of this Nation?

Mr. Dunton. I certainly do not, sir, and I certainly do not think we should even consider anything else as long as this situation exists. This is the most sordid situation that, I believe, in my experience as a businessman over a period of 45 years, I have ever encountered. I cannot conceive of a country so callous, so indifferent, so forgetful of its obligations to the young men of this country who went out and turned in such a splendid record of performance. I do not think the economic considerations of the situation have anything to do with the case. I think it is a question of whether this country makes good on its commitments to its young men, and particularly when we consider that this is an excellent investment, investing in homes for the young men of the Nation, and homes that they sorely need-yes, and homes that they cannot get if they have to make a down payment.

Now, by a peculiar trick of circumstances I find the Veterans' Administration, for some unknown reason, opposed to a free, open market for loans. I want to comment on that. In trying to analyze it--it is a very confusing situation in trying to analyze it, I believe that they are opposed to it because they are afraid that if the open market is reestablished, all of the lending institutions will immediately dump $7,000,000,000 worth of paper, and will require a large capital outlay of funds on the part of the Veterans Administration, and I think they mistakenly think that there is going to be a call for $7,000,000,000 and that they will, therefore, be curtailed on funds for some of their other direct expense activities. At least there is an attitude, an activity in that outfit that certainly should merit the attention of somebody. The Veterans' Administration should be behind this plan. It is the Government bureau that is entrusted with taking care of veterans' affairs, and its personnel certainly should be active in the interest of the veteran, and not against him. I merely want to make that comment at this point.

As a matter of fact, if this free, open market is established, gentlemen, there will not be a call for $7,000,000,000 at all. They will not unload this paper. Let me show you what happens. The psychological effect of a free, open market, and knowing that they have the market, induces a primary market among the large life insurance companies and other investing institutions. As long as there is no secondary market, the large holders of capital in this country will not take up that paper, but the psychological value of the market itself will provide a primary market. And as evidence of that fact I call your attention to the fact that up to the time I don't know whether the figures are available here--up to the time the RFC was closed, out of a total of about $7,000,000,000 in loans made, there were only $102,000,000 sold to the RFC, proving that it was the psychological value of the market, and that it would not require large capital output.

Senator JENNER. Let me interrupt there to ask what was the financing charge? In other words, the primary loan carried 4 percent. Then if it goes into a secondary market under the system

carried on by the Reconstruction Finance Corporation, what discount is paid?

Mr. DUNTON. No discount.
Senator JENNER. No discount? I thought it was 1 percent?

Mr. Dunton. No; that 1 percent that is referred to in the act is a servicing fee that is given to the lending institution, the primary lending institution. May I explain the mechanics of that?

The lending institution, we will say, makes a $1,000,000 loan. They cannot hold the paper. They have got to turn their capital over to get more money for more loans, to build more houses. So they sell this million dollars of paper to the RFC, to the Federal National Mortgage Association. The Federal National Mortgage Association, or the Veterans' Administration, as the case may be. will pay to the lending institution that sold the paper to them, servicing fee of 1 percent per annum on the unpaid principal balance of the note, thereby placing the decentralizing of the collections on that paper through the local lending institutions, and reimbursing them for their cost by the payment of the 1 percent per annum fee. That was not a discount. It was a servicing fee being paid for servicing, making collections, paying taxes, and things of that character.

Senator JENNER. And that applies under this proposed bill? This proposed bill fixes the fee not in excess of 1 percent?

Mr. DuNton. Yes, sir. I would like to emphasize again at this point the value of this plan from the standpoint of home ownership and what it will do for this country. I firmly believe that if this plan were to continue to operate, 90 percent of our housing problem would be solved, and the bitter controversy that rages over the question of public housing and slum clearance might, to a large extent, be solved by the continuance of this plan within a very short period of time2 or 3 years, perhaps, if it continues at the rate it is now going. It is a splendid plan, gentlemen. It should be put back.

I cannot think of anything else to say. I will be very glad to answer any questions that the committee may have.

Senator VORSE. Mr. Dunton, I think the record ought to show s more complete statement of your business background. When people come to read this record they will want to know the wide experience that you have had in the field of business.

Mr. DUNTON. I am president and general manager of the First Federal Savings and Loan Association of Altadena, Calif., an organization which I organized in 1934 and have continually managed since, starting with a capital of $5,000, and today our assets are nearly $15,000,000. Since the spring of 1946 we have engaged exclusively in financing the construction of veterans' housing, single-family housing. We have financed and directed the construction of over 1,500 units of veterans' houses since that date. We have committed our association as an obligation to the young men of this country to the production of decent, livable, sound, single-family homes, and we have a distinguished record in California in that respect. We there fore know that unless a bill of this character is passed, our operations along this line will have to stop.

Senator Morse. I have before me, Mr. Dunton, a report of the House committee on a bill in the House which I understand is identical with Senator Jenner's bill. Are you familiar with the report of the House committee?

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