tional capital stock. FNMA would credit the ABC account with $9,500. Within the 9-month warehousing period ABC finds a permanent investor for the GI loan at an aceptable price, obtains the return of the mortgage papers for delivery to the permanent investor upon the execution of a trust receipt. The permanent investor pays ABC for the loan, and ABC discharges its obligation to FNMA by refunding the $9,500 borrowing less any payments previously made on account of principal, with accumulated interest at 412 percent per

annum.

ABC would retain the original $5,000 in capital stock and the $100 in additional capital stock and would have a continuing line of $200,000 in mortgage warehousing credit. ABC could, of course, purchase more than $5,000 in capital stock and thereby increase its line of credit by 40 times the value of each share purchased.

We are confident that his proposal would accomplish the twofold objective of insuring an even flow of home mortgage funds without cost to the taxpayers and providing a medium for the orderly and expeditious transfer of all FNMA stock to private owners in less time than it would take under the present FNMA plan of operations. Military housing

The bill, H. R. 10157, proposes certain amendments to title VIII of the National Housing Act designed to provide family housing for military personnel.

We share with the Congress the desire to bring about the early provision of neded family housing for personnel of the armed services and their families. We agree that adequate family housing is a vital factor of morale, and to the extent that the need is not met the national security is thereby impaired.

While we are sympathetic with the objectives of the title VIII program and the proposed amendments, we must warn against excessive programing of projects which could have serious effect on the realestate economies in many cities which have provided housing to servicemen for many years.

During the past 2 months our association has received numerous communications from several parts of the country deploring the programing of substantial numbers of units in areas already experiencing more than normal rental vacancies. We are particularly concerned that this programing has resulted in FHA's tightening of builders' commitments sharply below the normal building activity for the areas involved.

We ask, therefore, that the title VIII program continue to function as Congress intended, but we feel that the Department of Defense should formulate and apply reasonable criteria as to determination. of need.

We have already conferred with the Department of Defense and recommended that local commanders discuss the housing needs of their personnel with local real-estate boards and builders' associations in order that such needs may be met with the minimum adverse impact on the communities affected. Our local boards will be more than willing to make their services available for this purpose.

We are aware that the House has approved an amendment to the military construction bill which would require that the Armed Services Committees of the two Houses approve all title VIII projects.

Perhaps this might prove an appropriate medium for the proper determination of the military's actual housing needs.

This concludes our prepared testimony, and we wish to thank you for the opportunity of appearing before you and presenting our views. The CHAIRMAN. Are there any questions?

Mr. RAINS. I would like to ask a couple of questions, Mr. Chairman. The CHAIRMAN. Mr. Rains.

Mr. RAINS. In the first place, on title VIII housing, it is my information that FHA, who has the final approval, of course, does check with the real-estate authorities and the people who know the housing situation in the various areas where title VIII projects need to be built; is that correct?

Mr. SCOTT. That is true, sir, but despite the fact that FHA might find that there is no need, or that it would have an adverse impact on their other insured loans in that community, the branch of the armed services is permitted to go ahead with its project, the only proviso being that they then must assume the responsibility for the loan, and release FHA from its obligation to underwrite.

Mr. WILLIAMSON. I would like to comment on that, Mr. Rains. It is a debatable question whether FHA actually makes a market analysis, and whether they contact the local people.

In Fayetteville, N. C., the president of the local real-estate board went to the FHA to seek a commitment on two houses that he wanted to build. The commitments were rather low and he asked what had happened and the FHA told him then, confidentially, that they had already approved 2,000 units for Fort Bragg, and that was the first information that the real-estate board had in the Fayetteville area. Yesterday at the hearing in regard to both Fayetteville and Fort Benning, I think it was rather clear to the members of the House Armed Services Committee that there had not been the liaison and the cooperation which I think the Congress intended there should be. Mr. RAINS. Of course, it is a fact that as of yet the Secretary of Defense has not overruled in a single instance the recommendation of the FHA.

Mr. WILLIAMSON. That is right.

Mr. Scort. I might say this, Mr. Rains, if I may, that in my own area, at a Nike site, the FHA is completely unfamiliar with the fact that the military intends to establish 16 units of Capehart housing there, and has received no communication from anyone. The first they learned of it was in the public press.

Mr. RAINS. Of course I think we are jumping at boogers that are not really there. Before they get that 16 units, they have got to go through the FHA for the mortgage insurance, and they must have to have approval by the Armed Services Committee. I am sure the committees of Congress, the thing they want first, is military housing that is essential to the operation of the Military Establishment, and they certainly don't want any impairment of the already existing housing which is usable and sufficient.

We will try to keep our finger on that.

Now, you have a long and interesting statement, and I appreciate a lot of the references you make to the bill which the subcommittee worked on so long. I can understand your viewpoint even though it may be in disagreement in some instances with the bill.

There is one I absolutely cannot understand, and that is the reference you make to the use of any part of the national service life insurance fund for mortgages for GI loans, in areas of excessive discounts.

You seem to base your statement on the idea that the law requires that the Secretary invest in present securities, which is totally in error, because the present law allows the Secretary, if he desires, to invest it in the very kind of mortgages that I am talking about.

Mr. Scorr. But this would require the investment at par, and that is fallacious because these loans in these distressed areas

Mr. RAINS. You are wrong about the statement that it would require the investment at par, because it doesn't provide that. The investments thereon, in each of the mortgages, would not be at par, necessarily. However, I call your attention to this fact, that in those particular areas where these loans would be made, are now areas of direct loans of the Federal Government, straight out of the Treasury. So I couldn't understand why you would support a situation which might necessitate the expanding of the direct lending from the Federal Treasury rather than try to operate on a private enterprise basis.

Mr. SCOTT. We oppose the direct lending program.

Mr. RAINS. We have got to do one or the other for those places where the mortgage money is not available.

Mr. SCOTT. We feel the voluntary home mortgage program is work. ing very well.

Mr. RAINS. It is not working. The subcommittee hearings show there are only $40 million or $50 million, and in great areas, whole counties, in my State, Mr. Brown's State, and so forth, not a single GI loan has been made because they cannot get the money.

So we are faced, as I see it, if we are going to live up to our obligation to those GI's, the same as we live up to it around Washington or New York, of either doing direct lending, which I don't want, or trying to get some additional money into that field.

So I say I am a little bit-I don't quite understand your opposition to that section, because it is actually a private-enterprise deal, if FNMA is private enterprise. And it is the GI's money. It is his money, not the Government's money.

Mr. SCOTT. But these are trust funds.

Mr. WILLIAMSON. At the same time the Secretary of the Treasury would be required to make an administrative determination that in a certain area the discounts are excessive, and I think that we are just treating the symptom of a problem and not getting at the root of it. I think we are trying to equate the discount with something deplorable that is happening in the money market.

Mr. RAINS. Under the direct lending program, the Government is now required to ascertain that there is no mortgage money available in that area, which is the very same thing as determining excessive discount areas.

Mr. WILLIAMSON. That is true, but because that determination must be made, we still think it is not right. It attaches too much importance to the symptoms resulting from a fixed interest rate.

Mr. RAINS. Well, the disease is there is no money there, therefore the excessive discount. Isn't that the real trouble?

Mr. SCOTT. The reason for the lack of money is the unrealistic interest rate. Money in those areas commands a higher price.

Mr. WILLIAMSON. Our contention is that the veteran is not entitled to a submarket interest rate. I don't believe that it was ever the intent of the Congress that the veteran pay less for his money than anybody else.

Mr. RAINS. I think you are getting mixed up with the idea that we should be more interested in the interest rate than we are in the fact that the veteran gets a home.

Now, the end and aim of all the legislation was not the interest rates.
Mr. WILLIAMSON. That is right.

Mr. RAINS. It was that the veteran get a home under that bill.
Mr. WILLIAMSON. That is right.

Mr. RAINS. Now, if there is no money with which to get a mortgage, I feel that it is our duty to try to see that he does get it.

What do you think about it?

Mr. WILLIAMSON. I think we are all shooting for the same objective, except that the veteran today is paying a discount because the interest rate tied to the GI loan is a submarket rate, and it doesn't rise or fall with the market.

Mr. RAINS. That is not necessarily true, Mr. Williamson. The truth is that there is not enough mortgage credit in America, because actually all the mortgage credit we have is the savings of the people, and there is not enough mortgage credit to go around in some areas because it finds its use around the metropolitan areas of the country. You can get GI loans there, at the present interest rate, but you can not get them in those remote areas which I have termed high discount areas, but it is because they are away from the metropolitan centers. So it takes some kind of special effort, as I see it, to see that that veteran gets his right also, under the GI bill.

And since it is a private enterprise proposition-in fact, I think the day ought to come in which we could utilize for mortgages generally the pension funds of this Nation. That is where most of the people's savings now are going, and I want to do it the private enterprise way, surely, but this is a step toward that.

I repeat again that I think you ought to look at that angle a little bit, realizing the duty on the Members of Congress to see that the veteran gets a break.

Mr. SCOTT. Mr. Rains, I would like to say this, that in those highdiscount areas, it is all equated in the price. The price of mortgage money has been historically high in those areas, and therefore the selling prices of properties have been comparatively lower than in the metropolitan areas. Where mortgage money is cheap, prices are high; where mortgage money is dear, prices are low. So in effect the veteran is not paying more money in those high discount areas. It is simply an unrealistic rate. If conventional mortgage money is 6 percent, it is unrealistic to suppose that lenders are going to loan at 412 percent, even with a guaranty.

Mr. RAINS. The trouble is he doesn't get the mortgage at all.
Mr. SCOTT. He could at a flexible rate.

Mr. RAINS. He could if he paid 15 or 20 percent, but can you imagine how a Member of Congress would feel passing a law allowing a veteran in New York to have a loan at 412 percent and one in Mississippi to pay 15 percent?

Mr. SCOTT. But the veteran in New York is paying double or triple the price for the same property.

Mr. RAINS. That still doesn't add up to the responsibility in the law. Not at all, as to the price he pays for the property. That is all I have to say, Mr. Chairman.

The CHAIRMAN. If there are no further questions, call the next witness, Mr. Clerk.

We thank you for your testimony, gentlemen.

Mr. BATES. Thank you very much, Mr. Chairman. We appreciate the opportunity to appear before

you.

The CLERK. The next witness is Mr. Cowles Andrus, on behalf of the American Bankers Association.

STATEMENT OF COWLES ANDRUS, ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION

Mr. ANDRUS. Mr. Chairman, members of the committee, my name is Cowles Andrus. I am president of the County Bank & Trust Co., Passaic, N. J. I am also a member of the committee on mortgage financing and urban housing of the American Bankers Association. It is on behalf of this association that I appear before you today.

Over 98 percent of the 14,284 commercial banks and savings banks of this country are members of the American Bankers Association. These institutions hold approximately $77 billion of the savings of our people in the form of savings and time deposits. They hold as investments approximately $31.5 billion of real-estate loans on residential properties, of which $8.7 billion are FHA insured loans and $9.5 billion are VA guaranteed or insured loans.

Thus the member banks of the association are vitally concerned that the value of the savings dollars of the public entrusted to them by millions of depositors continue to be stabilized in terms of purchasing power. Of equal concern is the safety of their mortgage loans which could be impaired if an overstimulation of residential construction or price inflation should be brought about by overly liberal mortgage credit terms.

In previous testimony before congressional committees on postwar housing bills the association has pointed to the dangers inherent in too liberal credit. In times of full employment and generally rising incomes, such as the present, a further liberalization of mortgage credit terms does not appear to be necessary nor does it appear warranted, particularly in view of the very liberal terms already provided for FHA insured loans and VA guaranteed and insured loans. The views of the association on the specific provisions of H. R. 10157 have been formulated in the light of these basic considerations.

TITLE I-AMENDMENTS TO THE NATIONAL HOUSING ACT

The association, with certain exceptions, is generally in accord with the proposed amendments to the various FHA mortgage insurance programs covered by this title of the bill. It is opposed, however, both in the light of the basic considerations stated herein and for additional specific reasons, as set forth hereafter, to the following provisions of this title: