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Letters to Agency Heads on the Need for Restricting Housing Credit.

July 18, 1950

My dear Mr. Administrator:

The Director of the Bureau of the Budget has transmitted to me your recommendation that the aggregate outstanding amount of mortgages which may be insured under Title II of the National Housing Act be increased by all or some part of the remaining $1,250 million authorized by the Congress.

The Housing Act of 1950 requires that the President make a determination, before authorizing an increase in the statutory limit of the aggregate amount of insured mortgages, that such an increase would be in the public interest, taking into account the general effect of any such increase upon conditions in the building industry and upon the national economy.

As you know, residential construction in the last several months has risen to very high levels. Continuance of high levels would be entirely desirable, were it not for recent international developments. As suggested in your letter, it is already clear that, as a result of events of the last month, many materials used in residential and other construction will be required in increasing amounts for national defense purposes. It is imperative that these requirements be met fully and without delay. These increased demands will aggravate inflationary tendencies already evident in some of these materials unless positive actions are taken to reduce pressures in residential construction.

For this reason, I do not believe that it would be in the public interest to authorize the full increase of $1,250 million in the authority to insure new mortgages. Accordingly, pursuant to the authority of section 203(a) of the National Housing Act, I hereby approve an increase of $650 million in the aggregate outstanding amount of mortgages which may be insured under Title II of said Act, thereby increasing the insurance authorization under said title to $8,400 million.

For the same reason, I request that the Housing and Home Finance Agency and its constituent agencies take the following administrative actions:

(1) Employ as a ceiling in analyzing property for mortgage insurance purposes the construction costs existing on July 1, 1950.

(2) Reduce on all future applications for mortgage insurance, the maximum principal amounts, or the maximum percentages of appraised value or cost, or both, of mortgages so that required down payments will be substantially increased, especially for higher priced housing, excluding military housing and the Alaska housing program.

(3) Require substantial down payments for modernization and repair loans.

(4) Reduce substantially the availability of Federal Home Loan Bank credit to member institutions especially for business expansion purposes, and, through supervisory action, encourage the application of stricter credit standards on new mortgage loans by member home financing institutions.

(5) Limit the commencement of construction of public housing to not more than 30,000 dwelling units in the first six months of fiscal year 1951, during which time the public housing program should be thoroughly reexamined in terms of the developing international situation.

(6) Suspend for the time being commitments for direct loans for the construction of housing by educational institutions.

(7) Take such further actions as in your judgment are or may become necessary and appropriate (such as restriction of size of projects built for sale) to curtail the use in residential construction of materials essential to national defense.

Attached for your information is a copy of my letter of today's date to the Administrator of Veterans' Affairs. It is my wish that both agencies accomplish a substantial and parallel curtailment of housing credit, but in such a way that the relative preference presently accorded veterans is preserved. I would appreciate it, therefore, if you will consult with the Veterans' Administrator in working out the details of these programs, and advise my office of any problem which remains unresolved.

Attached also for your information is a copy of my letter to the Chairman of the Reconstruction Finance Corporation regarding operations of the Federal National Mortgage Association. I would appreciate your cooperating with him in the planning and execution of the actions which I have requested.

Sincerely yours,

HARRY S. TRUMAN

[Honorable Raymond M. Foley, Administrator, Housing and Home Finance Agency]

My dear Mr. Administrator:

As you know, residential construction in the last several months has risen to very high levels. Continuance of high levels would be entirely desirable, were it not for recent international developments. It is already clear that, as a result of events of the last month, many materials used in residential and other construction will be required in increasing amounts for national defense purposes. It is imperative that these requirements be met fully and without delay. These increased demands will aggravate inflationary tendencies already evident in some of these materials unless positive actions are taken to reduce pressures in residential construction.

For this reason, I request that the Administrator of Veterans' Affairs take the following administrative actions:

(1) Require a cash down payment of at least five percent for all loans guaranteed, insured, or made by the Veterans' Administration, wherever permissible under existing law.

(2) Increase such required cash down payments in amounts equal to any increase in appraised value occasioned by recognized increases in construction costs over those existing on July 1, 1950.

(3) Restrict direct loan authorizations in each calendar quarter of fiscal year 1951 to one-fourth of the total amount authorized for the fiscal year.

(4) Take such further actions as in your judgment may become necessary and appropriate (such as restriction of size of projects built for sale) to curtail the use in residential construction of materials essential to national defense.

Attached for your information is a copy of my letter of today's date to the Administrator of the Housing and Home Finance Agency. It is my wish that both agencies accomplish a substantial and parallel curtailment of housing credit, but in such a way that the relative preference presently accorded veterans is preserved. I would appreciate it, therefore, if you will consult with the Administrator of the Housing and Home Finance Agency in working out the details of these programs, and advise my office of any problem which remains unresolved.

Very sincerely yours,

HARRY S. TRUMAN

[Honorable Carl R. Gray, Jr., The Administrator of Veterans' Affairs]

Dear Mr. Chairman:

As you know, residential construction in the last several months has risen to very high levels. Continuance of high levels would be entirely desirable, were it not for recent international developments. It is already clear that, as a result of events of the last month, many materials used in residential and other construction will be required in increasing amounts for national defense purposes. It is imperative that these requirements be met fully and without delay. These increased demands will aggravate inflationary tendencies already evident in some of these materials unless positive actions are taken to reduce pressures in residential construction.

Enclosed for your information are letters I have addressed to the Administrator of the Housing and Home Finance Agency and the Administrator of Veterans' Affairs, requesting them to take certain steps to restrain the expansion of housing credit.

As a corollary to the actions which I have asked these agencies to take, I request you to reexamine immediately the regulations of the Federal National Mortgage Association governing both the purchase and sale of insured and guaranteed mortgages. I understand that the current regulations governing the purchase of mortgages have substantially reduced the volume of purchases. This situation should be carefully watched to make sure that further mortgage purchases are held to the irreducible minimum.

I also understand that sales of mortgages owned by the Federal National Mortgage Association have been stepped up considerably in recent months. I am sure you will agree, however, that in the present situation sales efforts should be further intensified in order to absorb, as much as possible, surplus funds seeking investment in residential mortgages.

Inasmuch as the Federal National Mortgage Association will soon be transferred to the Housing and Home Finance Agency, I would appreciate your working closely with the Administrator of the Housing and Home Finance Agency in the planning and execution of these actions.

Very sincerely yours,

HARRY S. TRUMAN

[Honorable Harley Hise, Chairman, Board of Directors, Reconstruction Finance Corporation]

Note: Copies of these letters were sent to the Honorable Charles F. Brannan, Secretary of Agriculture, the Honorable Thomas B. McGabe, Chairman of the Board of Governors of the Federal Reserve System, and the Honorable Maple T. Harl, Chairman of the Federal Deposit Insurance Corporation.

The President signed the Housing Act of 1950 on April 20, 1950 (64 Stat. 48).

Harry S. Truman, Letters to Agency Heads on the Need for Restricting Housing Credit. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/230978

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