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 problemdon'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

fearful that if it is made too easy to get money from FNMA, that that will be a very inflationary aspect of this whole situation.

Mr. RAINS. We will agree that it should be kept a secondary market, but that it should be kept a functioning and helpful secondary market, not just a drag on the market. We will agree to that.

Mr. CAMP. I think that is absolutely right.

Mr. RAINS. All right.

Now, one or two other questions.

I call your attention to section 201 (d), to which you referred on page 16 of your statement, and section--in 10157 before this committee, which has to do with special assistance programs, which are what the term describes, programs that need special assistance or they wouldn't be so set up.

In this bill it is only for 1 year, that they may be bought at par of these new and beginning programs, whereas the Senate bill makes it permanent. 10157 only asks that they be supported at par for 1 year. Do you see any real objection to that? In other words, first of all, assuming the Congress wants the program to go-that is, if the Congress wants it to move, cooperative housing, and other programs which they have denominated as special assistance programs— whether you like the program or not, if the Congress thinks they must move, do you see any objection, since they must have special assistance, to support them at par for 1 year, to get them off the ground?

Mr. CAMP. That is a very interesting and important question, and I think that if you and we all could be sure that it would be a 1-year program

Mr. RAINS. Well, that is our job up here to see that it is.

Mr. CAMP. Then I don't think that for just 1 year the inflationary aspects would be of enough importance to make a great difference. But it is a question of the Government adopting a policy like this, supporting a market which is supposed to be a free market.

Mr. RAINS. One thing you know, that you are opposed to the Senate's version of the bill, which would support them permanently at par.

Mr. CAMP. Yes, sir. I did not know that the Senate did that.

Mr. RAINS. We shared some of the same viewpoints you did in that we wouldn't want to see them supported at par once they are going concerns. Our idea in this bill was to try to give the program the jet propulsion it needs to get off the ground and then see if it will fly on its

own.

Mr. CAMP. May I ask a question?

Does 9537-I was trying to study those two bills to come before you-have a provision on this?

Mr. RAINS. I don't know.

I don't think it does.

Now, going to page 17 of your statement, dealing with the investment of national service life insurance funds, I would like to ask you about that.

First of all, I assume you are against direct straight loans from the Federal Government?

Mr. CAMP. Yes, sir; I am.

Mr. RAINS. But your argument to me convinces me firmly that you favor a big program of direct loans from the Federal Government to

the veteran who under the law is entitled to build a house, rather than to see it done in private enterprise, under this section of NSLI. Mr. CAMP. I believe I missed your point on that.

Mr. RAINS. You seem to approve of a direct loan program.

Mr. CAMP. I didn't mean to indicate that I in any way approved of that.

Mr. RAINS. You seem to be more in opposition to this particular proposal than you did of the direct loan program; is that correct? Mr. CAMP. I don't believe so. I think probably the reason we devoted more attention to this subject than some of the others is because it is a fairly new subject. It has been discussed, but I believe it is the first time it has been introduced in a bill where we have appeared on it, so it is the first time we have had an opportunity to discuss it at length.

Some of the other questions-support markets, discounts, and so forth—we have testified on before. So I don't think we were trying to oppose this any more; it is just to get our views in full.

Mr. RAINS. First of all, the Congress of the United States wrote into law several years ago, and it is still the law, that a man who served his country in time of war was entitled to certain benefits and privileges as related to housing. Whether it is wise or not, that is the law. Mr. CAMP. Yes, sir.

Mr. RAINS. In the light of the fact that there are many counties in our native State of Alabama and in many other States of the Union, as well as the great State of California, where veterans are not able to get enough money to build homes, and if the Congress has a responsibility to see that that is done, and recognizing the fact that this money, in this national service life insurance fund, is not the Government's money but is the GI's money, and that the present law says that the Secretary of the Treasury may invest either in Government securities or in Government-guaranteed securities, what is the serious objection to that other than the fact that it would require the replacement of a GI's money, that he ought to have with which to build a home, by the Federal Government in the bond market? Is there any other serious objection to it?

Mr. CAMP. I know exactly what your motive is, because I have heard you discuss this subject before-your extreme interest in developing new sources of funds for mortgages.

Mr. RAINS. That is correct. I want to do it in the private mortgage market if it can be done.

Mr. CAMP. So I know exactly what you are driving at. But as I study this question, it seems to me the big thing that we are confronted with is that to use that particular money for mortgages does not increase the total supply of funds available for mortgages, because as was pointed out in our testimony, NSLI would have to sell Government bonds. Somebody would have to buy them. If insurance companies, for example, bought them, then it would take that much money away from the mortgage market that they could invest. So I am just wondering-I know exactly what your motive is, and I think your intent is fine-but will it actually accomplish the purpose; will it create any more money?

Mr. RAINS. I will ask you this question: You know, one of the things that people believe, and we recognize the fact that the money we have to build homes and expand our capital investment in the