CHART 5

ESTIMATED AVERAGE CONSTRUCTION COST OF
PRIVATE DWELLING UNITS STARTED, 1946-55

AVERAGE AMOUNT PER DWELLING UNIT OF FHA INSURANCE WRITTEN, AND VA MORTGAGE CLOSED, 1946-1955

CHART 7

EFFECT, ON VALUE OF PRESENT LIFE INSURANCE
IN FORCE, OF TWO PERCENT A YEAR PRICE RISE
FOR TEN YEARS

CHART 9

Average rates of income and costs on nonfarm mortgage loans of a sample of life-insurance companies

NOTE. Companies covered accounted for about 80 percent of the nonfarm mortgage loans of all United States life-insuranc companies.

Mr. RAINS. Gentlemen, you have made a very comprehensive statement. I realize my inability to match wits with men so learned in the profession, but you certainly raise a lot of questions in the mind of an average Member of Congress in some of your statements, and among those questions, is, frankly, this:

In a Government that is spending billions and billions of dollars a year-regardless of what they spend it for, that is not the problem— don't you really know that that Government sets the interest rate rather than the interest rate finding its point in a free market?

Mr. CAMP. Well, I am not sure I would agree with that, Congressman Rains. Throughout what I have learned about this whole picture, it is a question of supply of and demand for funds, and as I have said to you once before, if the people of our country borrow faster than the rest of them save, then there is going to be a shortage of money, and when there is a shortage of money, just like the price of any other commodity, the price of money goes up.

We showed here on our charts how the price of homes had gone up in this period.

Mr. RAINS. I don't think you will contend, surely, that the interest rate is the only thing that has caused the prices of homes to go up, it is the spending of that money I was talking about, too, was it not?

Mr. CAMP. It is the whole inflationary process among other things, but I would say the most important thing, as you say, is the inflationary process. And I think you will notice

Mr. RAINS. Wait just a minute.

Now, since the price of homes is up, and with the Government spending vast sums of money, doesn't that in the long run establish what the cost of money is going to be, on that increased price of that home? That adds to that materially, does it not, the cost of the money?

Mr. CAMP. The amount of money that the Government spends? Mr. RAINS. Yes, sir.

Mr. CAMP. No question about it, because the amount of money the Government spends adds to the inflationary pressure. I think we are thinking alike.

Mr. RAINS. We are thinking alike part of the way, because I am convinced that Government spending helps to establish the rate of interest on all borrowed money in this country.

Mr. CAMP. Mr. Vieser makes the comment here that only to the extent it takes more money out of the savings of the people.

But I think I would agree with you to this extent, that the more money the Government spends, the Government has to get that money somewhere, and it pumps it into the economic life of our country, and that activity creates a demand for money and of course that tends to make interest rates rise.

Mr. RAINS. Going back to a few of the specific objections you raised to 10157 and also one that you raised to 9537, about the capital contributions to FNMA, in which you object even to the language in H. R. 9537, that it be equal to not more than 2 percent of the unpaid principal amount of the mortgages.

Is your basic objection to that the fact that you want FNMA to become, as soon as possible, a privately owned corporation?

Mr. CAMP. No, I believe my basic objection would be that FNMA should be used strictly as a final source of funds rather than to make it so easy to get FNMÅ funds that it would be used as a primary

source.

And by the way, isn't that 1 percent under 9537?

Mr. RAINS. It may be 1 percent.

Mr. CAMP. It says not less than 1. It mentions 2 percent and then not less than 1.

Mr. RAINS. As I visualize the use of FNMA, and I think the purpose for which it was set up was to take care of the ups and downs in the private money market, the peaks and valleys, and to try to act as a stabilizing influence-isn't that your understanding of it?

Mr. CAMP. That is certainly one objective.

(Mr. Brown now presiding.)

Mr. RAINS. As a result, the man who must use FNMA, the builder, he would much rather not be compelled to use it because he must buy some percentage of stock in it if he uses its facilities at all, so he usually is in a-well, we will use the term distressed situation, and if it is to take care of distressed situatitons, why should be burden him with an extra hundred dollars on a $10,000 loan which he has to pass on, if he is a builder, to the man who buys the loan?

Mr. CAMP. I am not sure it is always a distress situation. We have builders, of course, who want to build houses.

Mr. RAINS. That is not the record. I don't think you will find any builder who can get money any place else who would rather invest 3 percent of money in FNMA to buy stock and thus reduce it to 97.

It is our observation, from the home builders, from the people who testify, that they only go to FNMA when they can't get the money anywhere else.

Mr. CAMP. Well now, it is my understanding that that was the basic intent of Congress, that FNMA should serve that purpose.

Mr. RAINS. That is right.

Mr. CAMP. It should not be a primary market.

Mr. RAINS. That is right.

Mr. CAMP. And going back to your question about smoothing out of the peaks and valleys, which I think is important, if that can be accomplished without having some permanent program where FNMA will have to get its money through the commercial banking system and add to the inflationary stream, that would be all right, but we are so