(1) The provision in section 103 of the bill which would increase the loan amount for rental housing loans insured under FHA's section 207 from the present 80 percent of value to 90 percent of value. The owners of properties financed under section 207 usually hold such properties for investment and it seems appropriate that they be required to have a more substantial equity than in the case of owner-occupied properties. A larger loan amount would increase the total dollar interest payments on the loan which increase would presumably be reflected in higher rents.

(2) The provision in section 107 of the bill which would permit virtually 100 percent loans (except for $150 cash payment to apply towards closing costs) on relocation housing insured under FÌÅ section 221 and lengthen the maximum maturity of such loans to 35 years and even to 40 years, if the FHA Commissioner so authorizes.

It is our view that such a liberalization of the terms of these loans would tend to encourage unsound credit practices and would force lenders who might engage in such financing to rely primarily on the insurance rather than on the credit worthiness of the borrower or the quality of the property subject to the mortgage. Under these circumstances, there is greater risk of abuses developing and with the whole urban renewal program still in the early stages of development, it would seem advisable to retain the present limits on loan amount and maturity.

TITLE II-SECONDARY MORTGAGE MARKET

We view with concern some of the proposed amendments in section 201 of this title which are designed to liberalize the operations of the Federal National Mortgage Association.

It is and has been the position of the association that the FNMA should only supplement and should not supplant the private secondary or primary markets for mortgages. The recasting of the operational setup of the FNMA in the Housing Act of 1954 appeared to be for the purpose of attaining this status. Advance commitments were discontinued in connection with its secondary market operations and provision was made for the gradual transfer of the FNMA to private ownership through the acquisition of capital shares by those who used its facilities.

The amendments proposed in section 201 to permit the FNMA to again make advance commitments to purchase mortgages in secondary market operations, even with the safeguards intended to prevent excessive sales to the FNMA pursuant to such commitments, and the reduction in the amount of capital contributions which mortgage sellers to FNMA are required to make through the purchase of FNMA capital stock are, in our opinion, backward steps. Even if the prices set by FNMA in issuing advance commitments should work as the intended. safeguard against excessive sales, it would still be an entering wedge to the reestablishment of FNMA in the position of a primary market for mortgages. It should be kept in mind that FNMA now holds for liquidation approximately $2.5 billion FHA and VA mortgages previously acquired in direct market support operations.

It is recognized that some sellers of mortgages to FNMA look upon the capital contribution requirement as in the nature of an additional

charge for doing business with FNMA. Even when viewed in this light the maintenance of the present 3 percent capital contribution requirement appears necessary if mortgage sellers are to be encouraged to seek private secondary market sources before resorting to FNMA. In addition, the proposed reduction in the capital requirement would further postpone the time when FNMA would become wholly privately owned.

We question the justification for the proposed amendment in section 201 which would require FNMA, until June 30, 1957, to pay par for special assistance mortgages. Since the funds for such purchases are supplied to FNMA by the Treasury, this requirement would seem to be in the nature of a direct Federal subsidy to the mortgage sellers. It would appear desirable, at least, to permit FNMA to set a price for such mortgages in relation to prices in the private mortgage market, even if the prices so set were above those generally prevailing. In any event, FNMA should not be required to pay par for mortgages sold to it under the proposed special assistance program to support FHA section 203 (i) loans. Otherwise, FNMA would supplant the private secondary market purchasers of such mortgages and would become a primary market.

Investment of NSLI Fund

Under section 202 of the bill, it is proposed to authorize the Treasury to invest up to 10 percent of the reserves of the national service life insurance fund in VA guaranteed mortgages in geographic areas where private capital is found to be generally available only at excessive discounts. The purpose of such authorization is indicated in this section as being "in order to stabilize the price at which such loans generally will be salable to investors."

The only restriction on the price to be paid for such loans by the Secretary of the Treasury is that they shall not be purchased at a premium. However, the stated purpose would seem to indicate that purchases of mortgages for the fund should be at a higher price than that available from private mortgage investors. We question the propriety of the Government competing in the mortgage market with private investors and particularly at a higher price. It would seem to be an unwise precedent to establish.

It is noted that any sales of mortgages from the fund would have to be at par. Thus, so long as VA guaranteed mortgages were selling generally at a discount in the private mortgage market, the mortgages held in the fund would be frozen. Such a nonliquid investment would not seem desirable for life insurance reserves.

Also, FNMA would act as purchasing and servicing agent for the Treasury with respect to such mortgages and would receive a fee of three-fourths of 1 percent of the unpaid principal of the mortgages. FNMA is not set up as a servicing institution, so would either have to greatly enlarge its force or pay others to do the servicing for it. In either case, it would mean a substantial increase in the administrative expenses of FNMA.

Therefore, this proposal not only would have the effect of putting the Government into direct competition with private mortgage investors but also could prove costly to the taxpayers.

TITLE III-HOUSING FOR ELDERLY PERSONS

Under this title a new direct Government loan program for housing for elderly persons would be established. The HHFA Administrator would be authorized to make loans to nonprofit corporations for the construction or rehabilitation of housing for the elderly. A fund of $250 million, supplied by the Treasury, would be provided for such loans.

We believe that the financing of housing for the elderly should be undertaken by private mortgage-lending institutions and should not be a Government-financed program as is proposed in this title. We favor the approach in providing housing for the elderly set forth in H. R. 9537. Under this bill means would be provided, within the present framework of the FHA title II mortgage-insurance program, for financing the special type of structures and accommodations which elderly persons require by placing a share of the credit responsibility on other interested persons or nonprofit corporations.

TITLE VI-FARM HOUSING

This title would provide additional authorizations for loans and contributions to farm housing under title V of the Housing Act of 1949. We question the need for such additional authorizations, particularly the direct subsidies in the form of contributions, in view of the very liberal financing assistance provided farmers under the BankheadJones Farm Tenant Act and other farm credit legislation.

TITLE VII-COLLEGE HOUSING

We recommend that provision be made for adjustment of the interest rate on college housing loans in line with the amendments to section 401 of the Housing Act of 1950, contained in sections 502 and 503 of H. R. 9537, which would permit an interest rate on such loans that would be more related to economic conditions at the time the loan is made and would tend to encourage private capital to share in the financing of college housing.

We also recommend that the increase in the aggregate loan authorization be limited to $100 million as provided in section 501 of H. R. 9537.

CONCLUSION

We have confined our comments to the titles of H. R. 10157 which relate to mortgage financing, since it is the legislation in this area with which the association and its member banks are primarily concerned. We believe our suggestions to be sound and in the interest of preserving a strong and healthy economy and hope that they will receive serious consideration by your committee. We appreciate being afforded this opportunity to present the views of the association on this legislation.

The CHAIRMAN. We are very glad to have your views, Mr. Andrus. Mr. BETTS. Mr. Chairman.

The CHAIRMAN. Mr. Betts.

Mr. BETTS. With reference to college housing, is there much participation of private capital in college housing programs?

Mr. ANDRUS. I can't speak from personal experience on it, Mr. Betts. I understand not, and I understand the reason primarily is the rate of interest. However, I have no expression from the American Bankers Association on the point.

Mr. BETTS. That is all, Mr. Chairman.

Mr. O'HARA. Mr. Chairman.

The CHAIRMAN. Mr. O'Hara.

Mr. O'HARA. Mr. Andrus, I am interested in the second paragraph of your statement. I understand from that, the member banks of your association hold some $77 billion of the savings of the American people.

Mr. ANDRUS. That is correct, sir.

Mr. O'HARA. And of that amount, some $312 billion are invested in residential estate properties.

Mr. ANDRUS. Well, plus their own capital.

Mr. O'HARA. And breaking that down, about $18 billion are in guaranteed mortgages.

Mr. ANDRUS. Yes, sir.

Mr. O'HARA. Leaving $13 billion, or about one-sixth of the entire savings of the American people held by the banks invested in residential mortgages that are not guaranteed; is that right?

Mr. ANDRUS. That is right.

Mr. O'HARA. Now, in the event that a deflation should come, not on the scale of the twenties but along that general pattern, what would be the effect on the banks and on the security of the savings of the American people?

Mr. ANDRUS. We feel that the impact would not be as pronounced as we might have thought in the past by reason of the definite program of amortization which is followed, and the necessity for the borrower to keep his taxes up to date.

Mr. O'HARA. It is your view that that would act as a very helpful cushion?

Mr. ANDRUS. Very definitely; yes, sir.

Mr. O'HARA. You are concerned, I judge from your statement, that there should not be overbuilding?

Mr. ANDRUS. That is right.

Mr. O'HARA. Do you see any signs of that now?

Mr. ANDRUS. May I speak as an individual?

Mr. O'HARA. Certainly.

Mr. ANDRUS. There does seem to be evidence that in the existing housing field there is some softness by reason, perhaps, of the fact that there has been very extensive new construction.

Mr. O'HARA. Thank you, sir.

I wanted to bring out the fact that one-sixth of the savings of the American people are in these mortgages that are not guaranteed. Mr. ANDRUS. Yes, sir; and the banks do feel that responsibility. Mr. O'HARA. And I am glad you emphasized that.

Thank you, sir.

Mr. BROWN (presiding). Are there any other questions?

Mr. KILBURN. Mr. Chairman.

Mr. BROWN. Mr. Kilburn.

Mr. KILBURN. Do the American Bankers Association take any position on public housing?

Mr. ANDRUS. Not for a definite statement, Mr. Kilburn. Of course, there is a great deal of thought given to it, but there isn't such unanimity of opinion throughout the membership of 14,000 banks, that they feel that they are prepared to make a positive statement.

Mr. KILBURN. Of course, I am very much against public housing myself, and I hoped that the association would take a position on it. Mr. ANDRUS. The association, I think, has been very characteristically disposed to keep all business in private enterprise hands. I think that is a perfectly fair statement.

Mr. KILBURN. That is all.

Mr. BROWN. Are there any other questions of this witness?
Thank you, Mr. Andrus, you may be excused.

Mr. ANDRUS. Thank you, gentlemen.

Mr. BROWN. The clerk will call the next witness.

The CLERK. Mr. Joseph B. Haverstick, president of the National Association of Home Builders, accompanied by Mr. George S. Goodof the National Association of Home Builders.

year,

Mr. BROWN. Come around, gentlemen.

You may proceed, Mr. Haverstick.

STATEMENT OF JOSEPH B. HAVERSTICK, PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS; ACCOMPANIED BY GEORGE S. GOODYEAR, FIRST VICE PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS

Mr. HAVERSTICK. Mr. Chairman and members of the committee, my name is Joseph B. Haverstick. I am an active home builder from Dayton, Ohio, and appear here today as president of the National Association of Home Builders. I have with me George S. Goodyear, our first vice president and chairman of our division of governmental affairs, who is a builder from Charlotte, N. C., and Herbert S. Colton, our general counsel.

As you know, the National Association of Home Builders is the trade association for the home-building industry. Its membership now is almost 37,000, grouped in approximately 250 affiliated local and State associations.

Before discussing the specific provisions of the legislation now before you, I would like to report to you the disturbing situation in which homebuilding now finds itself. New starts for April fell to a seasonally adjusted annual rate of 1,110,000, which is substantially below 1955. This in itself would be no cause for concern, as we have always felt that production would settle at a level somewhat under that of last year.

However, the clear indications are that the trend is still sharply downward. Unless there is some immediate improvement in the financing picture, the outlook for the remainder of the year is not hopeful. From practically all sections of the Nation our members report that construction loans are becoming more difficult to obtain each day. They report that permanent mortgage loans have for some time been almost as scarce as in "the mortgage drought" of 1953 and in the past 30 days have become even more scarce.