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Show Merry-Co-Round By DREW PEARSON and ROBERT S. ALLEN (Below Is the third of a aeries of article en housing, this instalment darling with the federal housing administration which promotes Individual home construction, a differentiated from the I . H. Housing authority which promote maaa low-eoet housing or slum clearance.) WASHINGTON In 1934. when Jimmy Mof-fett, Mof-fett, first federal housing administrator, went to the White House with Stewart McDonald, present administrator, to chart the course of the housing program, the president laid down the rule that he wanted mortgages issued at the flat Interest rate of 3 per rent. This was a most important innovation and looked like a real break for the home-builder. But apparently it was ton much of an innovation inno-vation for Moffctt and McDonald, for they went back to their offices and promptly hoisted the rate so that it amounts now in the long run to about 7 per cent. Thi they did through the subtle wizardry of adding i ow 1 per cent as a service charge by the banks, then another 'i of 1 per cent as an insurance charge by the FHA. These charges do not decrease as the loan is paid off. Thus if a home-owner has borrowed $5000 and at the end of twenty year ha paid off all but $500, he still pays service charges and Insurance not on the $500, but on the $5000. This is the same scheme practiced by instalment instal-ment finance companieg and brings the actual interest rate up. Expensive Fund When Jimmy Moffett appeared before the senate banking and currency committee in 193S, there was some objection to such practice. He explained, however, that the FHA service charge is paid into the "Mutual Mortgage Insurance Insur-ance funds," from which the home-owner would receive dividends. "Any benefits accrue to the home owner," Moffett told the committee, "whether we charge him of 1 per cent or 1 per cent ... On a twenty-year mortgage it ought to pay out in about 17 years, and the accrual in the insurance fund would apply to the reduction of the principal." After McDonald succeeded Moffett, he informed in-formed the president that FHA was doing so well that it would contribute $5,000,000 toward its' administrative budget previously voted by congress, thus help the president balance his budget. But this $5,000,000 was to be taken out of the Mutual Mortgage Insurance fund, which Mr. Moffett previously said was to accrue to the benefit of the homeowner. Housing officials claim that premium re-reipta re-reipta have been coming in so bountifully that they can still dip into th mutual mortgage fund for administrative expense and at the time time carry out Moffett'a promise of paying off in 17 rather than 20 years. Among those on the FHA payroll is Wesley Zane, a former Standard Oil man, left as a pensioner pen-sioner by Standard Oil Executive Jimmy Moffett. Mof-fett. Zane draws $8000 as auditor, spend much of his time at the rce and. being an ardent Republican, Re-publican, lost bet that Roosevelt would lose congress in the 1936 election. Another drawing an upper-bracket salary Is Charles C. McGehre of Atlanta, nicknamed the "Coca-Cola Kid." McGehee got his job through Jimmy Roosevelt McGehee is to administer title 1 of the new FHA act. Title 1 provides for modernization and repair loan, and ha been the source of more grft than any other part of the FHA. This part of the old act wa drafted by Roger Steffan, vice president of the National City Bank of New York, and considered consid-ered the greatest expert on character loan in the country. National City Bank It is unfortunate that most of the graft regarding regard-ing modernization loans later wa uncovered in transactions between loan-seekers and the National Na-tional City Bank. In one instance, Joseph Briano was sentenced to 18 months for obtaining 17 fraudulent FHA loans from the National City Bank, and two from the Manufacturers' Trust company. More recently. John Mellon waa given a year for negotiating ne-gotiating more than twenty fake FHA loans with the National City Bank. It was brought out during the trial that racketeers had organized a system of going . the round of Ntionl City branch offices, negotiating ne-gotiating an average of one loan a day without any investigation by the bank. Even when Interest In-terest payment notices were returned with, "No one at this address" on them, no effort was made to check on the borrower. The loans, of course, were guaranteed 100 per cent by the government. The banks Jost nothing. On one occasion, Fred H. Schomburg. in charge of FHA investigations, took a National City Bank attorney to listen to the full confession confes-sion o a loan racketeer who claimed bank official, of-ficial, who passed upon FHA loan, got a cut from the racketeer of one-third of every loan issued. The bank official has since resigned. No charges have been preferred against him. fechomburg urged investigations but he was dropped by Administrator McDonald as an economy econ-omy move last July. (Copyright, 1937, for Th. Telegram.) |