The Loan Scandals

Dwight Eisenhower is passionately determined to keep the breath of scandal away from his Administration. Last week this determination erupted into the firing of the Federal Housing Commissioner, Guy T. O. Hollyday, though no one sus pected him of wrongdoing. Eisenhower simply got impatient at what he consid ered Hollyday's too-relaxed attitude to ward old scandals in the FHA.

Section 608. The President's indignation was fixed on rackets that have been well known for years. They grew out of two much-abused FHA regulations. The first, known as Section 608, provided FHA insurance for as much as 90% of mortgages on rental housing projects. It was designed to break, and did break, the back of the postwar housing emergency by deliberately encouraging bankers to be generous in their loans to builders. Section 608 lapsed in 1950 -- but not before many unscrupulous builders had taken advantage of its bountiful provisions.

Often a builder could get a high mort gage under Section 608 and then build for much less than the face value of his loan. Then he could sell his new property, with the new owner assuming obligation for the full mortgage, and pocket the loan savings. The windfalls were breathtaking.

One firm got $24 million in loans for an apartment project. It did the job for $20 million and pocketed the difference.

Scandal No. 2 involved the home improvement loan program, known as Title I. Under this program, FHA guaranteed more than 16,500,000 loans to homeowners for repairs. With inadequate funds, and without permission from Congress to inspect each loan, the FHA had been forced to rely on the prudence of banks to uphold ethical standards. In many instances, the reliance was misplaced. Con men and crooked contractors have made millions from overevaluated loans for slapdash or nonexistent repairs.

An Injured Bystander. The mortgage scandals were clearly no fault of Hollyday's since Section 608 had lapsed in the Truman Administration, three years before he took office. In the Title I scandals, he had been hamstrung by FHA's inability to inspect the repair loans it was required by law to guarantee. Last fall Hollyday took the only course left to him: he issued regulations requiring banks to take more responsibility for loans, and asked the FBI to investigate abuses.

President Eisenhower got word that Virginia's Senator Harry Byrd was about to make the old scandals more public than they already were. Ike wanted to beat Byrd to the draw. Hollyday was the victim.

The FHA chief was speechmaking in Trenton, NJ. when his dismissal was announced. He got the official word by telephone from Presidential Assistant Sherman Adams an hour later, and dutifully sat down in his hotel room to write the requested resignation. A new acting commissioner, Norman P. Mason, a Massachusetts lumber dealer, was named to head FHA before Hollyday's resignation reached Washington.

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