We believe that the successful experience of the past 22 years has shown beyond a doubt that the FHA program deserves to be established on a basis that will more adequately meet the requirements of rural people for home financing. This is the view expressed by the delegates to our association's last annual meeting in their resolution. These delegates represented most of the Nation's rural electric systems. With the Chair's permission, I should like to have this resolution inserted in the record at this point.

Again, we wish to thank the committee for this opportunity to express our views on this important legislation.

RESOLUTION PASSED AT NATIONAL RURAL ELECTRIC COOPERATIVE, 21ST ANNUAL MEETING, JANUARY 14-17, 1963

RURAL HOUSING

Whereas the housing loan programs of the Farmers Home Administration have provided the opportunity to thousands of rural people, both farmers and nonfarmers, to obtain decent, modern housing; and

Whereas new modern housing is of primary importance in the on-going, nationwide rural areas development program; and

Whereas credit for financing homes in rural areas is generally much more difficult to obtain than in urban sections and because of this millions of rural people are forced to live in substandard housing: Now, therefore, be it

Resolved, That we urge Congress and the administration to establish the FHA housing programs on a basis that will more adequately meet the requirements of rural people for home financing.

The subcommittee will stand in recess until 10 a.m., tomorrow morning.

(Whereupon, at 12:30 p.m., the subcommittee recessed, to reconvene at 10 a.m., Thursday, February 27, 1964.)

HOUSING LEGISLATION OF 1964

THURSDAY, FEBRUARY 27, 1964

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON HOUSING,

Washington, D.C.

The subcommittee met, pursuant to recess, at 10:10 a.m., in room 5302, New Senate Office Building, Senator John Sparkman (chairman of the subcommittee) presiding.

Present: Senators Sparkman, Clark, Williams, and Javits.

Senator SPARK MAN. Let the committee come to order, please. Other Senators are planning to be here, but I think we had better get started because we have got quite a number of witnesses this morning.

Our first witness is Mr. Ehney A. Camp, American Life Convention and Life Insurance Association of America. Mr. Camp, come around with your associate or associates. And for the benefit of the record, identify both yourself and your associate.

STATEMENT OF EHNEY A. CAMP, JR., EXECUTIVE VICE PRESIDENT, LIBERTY NATIONAL LIFE INSURANCE CO., BIRMINGHAM, ALA.; ACCOMPANIED BY JOHN G. JEWETT, SENIOR VICE PRESIDENT, THE PRUDENTIAL INSURANCE CO. OF AMERICA, NEWARK, N.J., ON BEHALF OF AMERICAN LIFE CONVENTION AND THE LIFE INSURANCE ASSOCIATION OF AMERICA

Mr. CAMP. Thank you, Mr. Chairman.

Senator SPARKMAN. Let me say that we are very glad to have you before us. You have been here many times, and we are always pleased to see you.

Mr. CAMP. Thank you very much.

Senator SPARKMAN. Before you get started, I want to commend you and your company particularly. I understand you are appearing today on behalf of the Life Insurance Association.

Mr. CAMP. Yes, sir.

Senator SPARKMAN. But I have often pointed to the fact that your company under your direction has done a remarkable job not just in Alabama but in other areas where you operate, but particularly in the State of Alabama.

I am very proud of what you have been able to do for us in Alabama in the field of mortgage financing of homes.

Mr. CAMP. Senator, you are very kind. I appreciate that. And I should like to say for the record that each time I have the privilege of attending one of these hearings I have a feeling of great pride to

see the important position occupied by my Senator from Alabama in this extremely important area.

And I want you to know, Senator

Senator SPARK MAN. You might add "difficult."

Mr. CAMP. Very difficult.

Senator SPARKMAN. It is not always an easy position.

Mr. CAMP. In fact, I cannot imagine a more difficult position, because there are many different ways of approaching the same goals, and it is a question of how we do it.

But I want you to know that the people of Alabama recognize and appreciate the important position you play in this whole field of housing, and we are indebted to you for the time and effort you have spent on this particular subject. We are very grateful to you. Senator SPARKMAN. Well, thank you.

Mr. CAMP. I also want to say that my associate here this morning is an important man in the mortgage business in our country. He is Mr. John G. Jewett, who is senior vice president of the Prudential Insurance Co. of America. In his capacity he heads up the mortgage operation of that company. And I believe I can make the statement that it is probably the largest private portfolio of mortgages in the entire world. I have not checked that with him, but I believe I can make that as a true statement.

But we are here today testifying in behalf of the American Life Convention and the Life Insurance Association of America, two associations of life insurance companies with a combined membership of 322 U.S. legal reserve companies which hold 98 percent of the assets of all U.S. companies. I serve as chairman of the Joint ALCLIAA Committee on Housing and Mortgage Lending.

The life insurance companies have a large investment in home mortgages and in community development so that we are very much interested in the legislation being considered by your committee. One measure of this interest is the fact that during the period 1946-63 the life insurance companies in this country made a total of $53.7 billion of residential mortgage loans on 1- to 4-family properties. Of this total, $17.8 billion were FHA insured; $12.2 billion were VA guaranteed; and $23.7 billion were conventional. Assuming that the average mortgage loan was $10,000, the life insurance companies have aided approximately 5,370,000 families to become homeowners since 1945. At the end of 1963 the life insurance companies held $27.2 billion of 1 to 4-family residential mortgages, of which $9.6 billion were FHA insured, $6.4 billion were VA guaranteed, and $11.2 billion were conventional.

You will note the total of FHA insured and VA guaranteed exceed the conventional portfolio.

In addition, they held a total of $5.4 billion of mortgages in multifamily residential properties, of which $1.2 billion were FHA and $4.2 billion conventional. Thus, the life insurance companies attach a high priority to home financing, both as an attractive outlet for investment of policyholders' funds and as a means of contributing to improved living standards of the American people. We shall continue to be interested in home financing so long as residential mortgage loans may be made in free markets at competitive interest

rates.

Life insurance companies have a responsibility to their policyholders to seek the highest rate of return available in the marketplace on their investments, for the higher the investment return of the companies the lower the cost of insurance to policyholders.

Before discussing the various sections of the Housing and Community Development Act of 1964, I would like to make a few general observations which will help to clarify our position regarding certain parts of the bill.

First, we in the life insurance business appreciate the great contribution which the FHA insurance system has made to broaden the private home mortgage market and to facilitate homeownership in this country.

The heart of the FHA program has been, and continues to be, title II. Through the principle of Government insurance of the risk inherent in home mortgages, and by means of careful standards of eligibility for mortgage insurance, the FHA system has made possible a standard mortgage instrument which can be sold in a nationwide market.

Behind FHA's willingness to insure has been the expectation that the loan would be economically sound, that is, that the borrower would have sufficient resources to meet his obligation and that the property would be adequate to secure the loan. Inherent in the FHA system was the expectation that private investors would make FHA loans at market interest rates.

But, more and more in recent years there has been a departure from the basic FHA concept into the insurance of special-purpose loans including those to aid low-income families, to aid the elderly, to stimulate cooperative housing, and to facilitate urban renewal.

These special purposes, in themselves, are on the whole understandable from a social viewpoint, but they do depart from the basic objective of FHA, which is, by means of Government insurance, to encourage private lenders to make carefully underwritten and economically sound home mortgage loans.

The usual pattern in the special-purpose programs has been to provide FHA insurance for loans at interest rates well below the going market rate, with FNMA being empowered to purchase such mortgages if private investors are unwilling to make the loans at submarket interest rates. Clearly an element of subsidy is involved in such programs.

We have serious reservations about the desirability of these subsidies, but in any event-this is the point we are trying to make-we believe that FHA should be kept a market-oriented program. If public policy should determine that subsidies are to be provided to some groups in the housing field, we believe it preferable that such subsidies be given directly or through some other mechanism without involving the FHA insurance system.

Second, in considering the legislation which is before your committee, it will be helpful to appraise how well the private home mortgage market is functioning. One measure of this is the availability of home mortgage credit.

Table 1, which is attached at the end of this report, presents a picture of the sources and uses of loanable funds during the period

1948-63.

As may be seen in the lower portion of the table, the amount of outstanding mortgages on one- to four-family residential properties in

creased by $15.9 billion in 1963—that is, just 1 year-and the total of "other mortgages," a substantial part of which was on multifamily residential properties, increased by $13.8 billion.

The amount of this increase on one- to four-family properties alone was nearly three times the net increase of $5.6 billion in outstanding corporate bonds.

Going back to 1948, the net increase of $5.1 billion in outstanding one- to four-family mortgages was just a little higher than the $4.7 billion increase in corporate bonds.

As shown in the table, since the war, residential mortgages have claimed a larger and larger proportion of long-term capital funds.

The record shows that, in terms of availability of financing, the private mortgage market has served the housing needs of our people very well. The private mortgage market is intensely competitive, and it covers every community in the country.

With these general observations as background, I would now like to give you our views on some of the sections of the Housing and Community Development Act of 1964.

I might say we are confining our discussion to those sections on which we think some knowledge and some experience which we have might be of some help to the committee.

TITLE I, SECTION 102: REHABILITATION ASSISTANCE TO ELDERLY

HOMEOWNERS IN URBAN RENEWAL AREAS

Under this section, elderly owner-occupants of one- and two-family homes in urban renewal areas could obtain FHA-insured home improvement loans up to $10,000 at an interest rate of 33% percent per annum, with provisions for deferment of principal repayment until death of the borrower or the surviving spouse, or transfer of title. The section would also provide the FHA Commissioner with discretionary authority to waive insurance premiums. The objectives are to encourage rehabilitation of these homes by reducing the financial strain on the elderly who qualify as low- or moderate-income borrowers, and to make relocation in many instances unnecessary. Since these loans would be made at far below market interest rates, the FNMA would provide the necessary funds through its special assistance program.

Although the desire to help needy elderly persons is a worthy one, we question whether the use of FHA insurance is the proper approach. As observed earlier, the fundamental purpose of FHA insurance is to provide a basis for private financing, or a competitive basis, of economically sound loans.

The home improvement loan program which is provided for in section 102 is basically a program of direct Government loans to the elderly at a submarket interest rate on highly preferential terms. If Congress should decide that this is a desirable program, then why is it necessary to introduce FHA insurance at all?

The enactment of section 102 would be one more instance of a series of programs in recent years which have moved FHA away from its original and sound conception. Encumbering FHA with these special subsidized programs tends to hamper the effectiveness of FHA in carrying out the core of its activity-the soundly conceived section 203 loan.