(2) This proposal cannot provide any assurance of adding to the supply of residential mortgage funds for the reason that, in order to raise the cash needed to purchase VA mortgages, the Secretary of the Treasury must dispose of a corresponding amount of Government securities now held by the NSLI fund. Unless the Federal Government were to retire these Government securities held by the NSLI fund, a highly unlikely development, the Treasury would be required to sell a corresponding amount of Government securities to other investors. The big question then is where the Government would find purchasers for these Treasury bonds. In today's capital market the Treasury receives little encouragement to offer securities to savings institutions such as life insurance companies, savings banks, savings and loan associations, and others. In any event, if such institutions were to purchase Treasury securities, these purchases would undoubtedly be at the expense of funds which might otherwise have been invested in the residential mortgage field. Also, under present circumstances, it is highly unlikely that the commercial banks would desire. to purchase the new Treasury securities, but if they did so we would have an expansion of the money supply as a result with obvious inflationary consequences. The difficulties which would be encountered in this proposal illustrate the hard facts of life confronting us when we attempt to avoid free market forces in the capital markets. The inevitable road is more and more direct Government intervention with serious consequences for the private enterprise system. (3) The language of this section clearly implies that VA loans may be purchased at a price higher than the applicable market price. We believe that it is wrong to require the Secretary of the Treasury as trustee of the NSLI fund to perform a fiduciary act not entirely consistent with the welfare and best interests of the policyholders and other beneficiaries. There is a well established legal principle that a trustee must make his investment acquisitions on the best available terms. (4) Section 202 is not needed in that the VA already has the power to stablize the market for VA loans under its direct loan program and in addition the VHMCP has accomplished a great deal in this direction. (5) If this section is adopted, it will have the disadvantage of driving private mortgage money away from the VA field in areas where it operates and will thus be self-defeating. (6) As we indicated in our earlier testimony, differences in discounts on VA mortgage loans are explainable by many factors, one of the most important of which is differences in the basic quality of the loan. This provision would fail to take account of such differences. Title III, housing for elderly persons: We agree, of course, with the objective of improving the availability of housing accommodations for elderly persons. However, we prefer the proposals in H. R. 9537 toward this objective which would make use of a liberalization of FHA insurance under sections 203 and 207. In H. R. 10157 the HHFA Administrator is authorized to make loans to private nonprofit corporations to assist them to provide housing and related facilities for elderly families and elderly persons. He cannot do so, however, unless funds are not available from private sources on terms and conditions as favorable as the bill permits, that is, a loan amount up to 100 percent of total development costs (including cost of construction of housing and related facilities plus the cost of the land, including needed site improvements), a maximum 50-year repayment period, and a maximum rate of 312 percent. To carry out this provision the HHFA Administrator is authorized to issue up to $250 million of obligations at a rate not to exceed 3 percent. We are opposed to this proposal on the following grounds. (1) Under present capital market conditions, and those which have generally prevailed for the last several years, it is highly likely that the funds to finance this program would have to be obtained by the United States Treasury from the commercial banking system, with further inflationary consequences in the residential construction field. (2) This direct loan program would supplant private financing in the field and would prevent the development of additional sources of private funds. (3) We believe that the liberalization of FHA terms as provided under H. R. 9537 will be sufficient to make a good start in the direction of expanding housing accommodations for elderly people. I would like to make the following brief comments on two other provisions of H. R. 10157. Rental housing insurance in title I. We recommend against the increase from 80 to 90 percent in the loan-to-value ratio under section 207 on the grounds that it would assure that the sponsor's equities would consist entirely of builder's profit, land profit, and organization expenses. Relocation housing insurance under section 221. We prefer the provisions of H. R. 9537 in this connection except as indicated earlier the proposal for a 40-year amortization period. In conclusion, we believe that the committee should take full account of the way in which private home mortgage financing has met the tremendous demand in the past decade. The investment of funds in this area has, in fact, been so great that it has outstripped the country's physical capacity to produce housing along with other real capital goods. The great concentration of expenditures for housing, exceeding our capacity to produce, is the reason why we have already suffered so much inflation in this area, particularly because of periodic injections of bank credit into the housing field through FNMA. In a full and expensive economy such as we have now, cheap money is almost always expensive. What seems to be a savings in interest is usually compounded in inflated costs. If interest rates on mortgages are stabilized at an artificial level by Government devices, it will inevitably cause a trend of private investment away from insured home mortgages to more attractive investments available for financing home building in the United States from private sources. A lower fixed interest rate will be of little value if money is not readily available. The only alternative in such a situation would be some additional device to increase the money supply with serious inflationary consequences on the private structure such as we experienced by reason of the rigidly controlled money market of a few years ago. If this should transpire, it would be a poor service to save the home buyer pennies in interest at the cost of dollars in the form of overpriced homes. We believe that at this time we should pay strict attention to the hard lesson we have learned and abandon any new ideas of departing from the principles of a free market and flexible interest rates. Mr. RAINS. Do you want these charts attached to your statement incorporated in the record? Mr. VIESER. Yes, sir. Mr. RAINS. They may be included. (The charts follow:) Sources: CHART 1 Sources and uses of capital funds in the United States, 1955 Sources and uses of capital funds in the United States, 1950-55 |