Mr. CAMP. Mr. Chairman, that concludes our testimony on that bill. We do have a two-paragraph statement on another bill, the FNMA participation bill. If it would be permissible, we would like to introduce that to your committee at this time.

Senator SPARKMAN. Go right ahead.

Mr. CAMP. We have briefly studied S. 2469 providing for the sale by FNMA of participations in pools of mortgages. If FNMA feels this device is not cumbersome and will assist it in disposing of its mortgages to private investors, we would not question this purpose.

It should be kept in mind that FNMA now buys and sells only FHA and VA mortgages. The proposed bill provides that FNMA may guarantee the participations it issues. It has been suggested that FNMA would thus be in a position to guarantee the obligations made by agencies other than FHA and VA. Such guarantees on the part of FNMA could result in it having outstanding large amounts of contingent liabilities without budgetary restraint.

The participation plan should therefore be confined to VA and FHA mortgages and should not be extended to mortgages and other types of claims held by various governmental agencies. It would not appear to be necessary for FNMA to guarantee participations if only FHA and VA loans were in the pool since these basic obligations are already guaranteed by the Government.

While we have no fixed opinions as to the desirability of this participation plan, we strongly urge that, if adopted, it be confined solely to FHA and VA mortgages acquired by FNMA under its secondary market philosophy. Also such a program should be self-supporting so that the net income from the mortgages in the pool will be sufficient to pay the interest on the participations together with administrative and operating expenses.

We are sorry we did not have time to get that typed up to give you in advance.

Senator SPARKMAN. It is very good. We appreciate the comment you make on it.

Senator Clark, you have just come in. Do you have questions? Senator CLARK. I have no questions.

Senator SPARKMAN. Senator Williams, do you have some questions? Senator WILLIAMS. No, I have no questions.

Senator SPARKMAN. I want to ask you a question or two. It is a very fine statement and does not call for a great deal of explanation, because you made a very clear statement.

But I want to go back to page 7 of your testimony where you refer to section 204, title II, correction of substantial defects in mortgaged homes. You say it should be restricted to "horror cases," and then you added, outside of your text, where there were a group of them. Now, suppose you have a single horror case. Do you not think it should be taken care of too?

Mr. CAMP. Well, Senator, I guess we should say if it is a real horror case. But what we are afraid of when you start dealing with individual cases is that you Senators and Congressmen are going to be bombarded with letters from every FHA home purchaser in the country telling you his window does not fit very well or his doorknob does not work, and we could really get everybody involved in trouble.

Frankly, we do not know exactly how to define horror cases. We understand the FHA had one subdivision, for example, where the

whole thing went bad. It was some kind of fault with the land, and the foundation was slipping. FHA took the position that if they could have gone in there, corrected the problem, and kept the people living in those houses, it would have been better than having to move them all out, then foreclose, creating a stigma on that subdivision, and then having to resell the same houses.

Now, that kind of case looks to us like it would be all right, but the problem is how to confine it to those, shall we say, horror cases and not get it involved down to minor defects in property.

Senator SPARKMAN. I agree with you on that, and I think that is one of the difficulties in handling it. And yet I have known a few individual cases which might have been described as horror cases.

I remember one, for instance, that occurred in my own hometown, and I think everybody admitted that it was a bad case. FHA found that it was. But in the meantime the builder had not only moved away from the State but, I believe, had gone bankrupt too.

Now, to whom was the home purchaser to turn?

We had brief hearings on this problem back in November. You are familiar

Mr. CAMP. I am not too familiar with that, Senator, what came out of that.

Senator SPARKMAN. Well, FHA suggested that it be authorized to go in and do such repairs as were needed in cases where the builder could not do it. Of course, the proposal of the two bills that were before us was that a bond be required by the builder.

I think we had some testimony indicating that we would run into some real difficulties, practical difficulties, in getting a bond. And FHA did not particularly relish that. And a question was raised about the expense of the bond.

Mr. CAMP. The expense of that, making this loan noncompetitive with conventional loans.

Senator SPARKMAN. Yes.

Mr. CAMP. Of course, I am sure you realize this is a brand new. concept of FHA insurance. The FHA insurance as we have always known it has been an insurance of the mortgage. It never was considered that the FHA was taking any responsibility for the property except to use due diligence to see

Senator SPARK MAN. Well, that is probably true, but it does not get around the question: Should there be some kind of governmental responsibility for this?

Mr. CAMP. Well, that is the reason

Senator SPARKMAN. Because the buyer thinks he is buying something that the Government has inspected, has found all right and is insuring.

Mr. CAMP. That is the reason, Senator, that we are supporting this in that broad aspect

Senator SPARKMAN. Yes.

Mr. CAMP. Without trying to say how it can be administered, so it will not involve these minor defects which are not meant to be covered. We are not smart enough to know how it could be handled, but we are supporting this broad concept that you have in mind right there.

Senator SPARK MAN. It is a problem.
Mr. CAMP. A real problem.

Senator SPARKMAN. It is not easy to work out.

Mr. CAMP. You are right.

Senator SPARKMAN. Now, I want to ask you a question about title V. On page 9 of your statement you say, and I quote from it:

If a proper mechanism were established to determine the availability of private credit in such cases, more funds of the Farmers Home Administration would be available for the strictly rural loans to farmers where private credit is not so readily available.

Now, can you tell us what mechanism you might suggest?

Mr. CAMP. Well, Senator, it seems to us that here is an excellent opportunity for Government and private industry to cooperate to do the kind of job that we want to do in this whole area.

First, our industry recognizes that there are certain types of loans that the Farmers Home Administration should make to farmers out in the really rural areas that private industry probably will not go into. And if you will note, we are saying that the direct loan is the best way to handle it.

But in recent years, over the last 10 years or so, particularly through the efforts of the voluntary home mortgage credit program, which served a real purpose, private lenders have really gone after loans in the small towns of this country.

In Alabama our company is represented by five mortgage bankers who operate statewide. Those mortgage bankers are actively competing among themselves for loans in all the small towns of Alabama, no matter what size.

Now, we are saying that under the present Farmers Home Administration-and I think I have seen your statements to the effect that you would like for private industry to make all of these loans that it can because

Senator SPARKMAN. I say that across the board.

Mr. CAMP. That is right because you realize as we do that every loan that private industry can make means that much more money would be available for the real needy cases. So we think all we need is a method of communication to determine whether private credit is available in this little town. And I am talking about nonfarmers now. There are several methods that could be used, but we think, for example, one like this would work: Let's suppose that in our State of Alabama that the private lenders could file with the State Director of the Farmers Home Administration-is that his title? The headman of the State? The State Director I guess of Farmers Home Administration. If the private lenders in that State, the mortgage bankers, the insurance companies and others could file with that State Director a list of the towns in Alabama in which they would like to consider loans, when the State Director got this list he could compile it, break it down, because he has area offices. He could send to each area office a list of the lenders who operate, shall we say, somewhat statewide, because the local people just do not know about what we are trying to do.

Each area office would then know what private lenders are seeking loans in that particular town. Then an applicant when he came into Farmers Home Administration, one of these kinds of applicants for a loan in a town, would be referred to, shall we say, two of these lenders.

Now, of course, if they were local lenders I think he should be referred to them first. But let's assume the town is too small and there are no local lenders. Then the application is referred to, shall we say, two statewide lenders. If both of those turn him down for some reason, because of his particular application or his credit or whatever it may be, then the Farmers Home Administration is perfectly at liberty to go forward and start processing the case.

We know we cannot make every one of them. There will be some cases we cannot make because of requirements or credit or whatever it may be.

But we say to you, and I think this is your philosophy, that every one we can make saves the Government money for these hardship cases that we have no chance to make.

Now, there are many variations of such program, and that just outlines it to you. And if you would permit me-we had not thought about it when we wrote this-we would like to submit some such outline in letter form maybe to be included in the record as a suggestion for you folks to consider.

Senator SPARKMAN. We should be very glad to have you do that, and you can make it either a letter or simply a supplementary state

ment.

Mr. CAMP. We will certainly do that.

(Mr. Camp later supplied the following information:)

Hon. JOHN J. SPARKMAN,

AMERICAN LIFE CONVENTION,

LIFE INSURANCE ASSOCIATION OF AMERICA,

Chairman, Subcommittee on Housing,
Committee on Banking and Currency,
U.S. Senate, Washington, D.C.

New York, N.Y., March 3, 1964.

DEAR SENATOR SPARKMAN: I appreciate the opportunity given me on February 27 to appear before your subcommittee in behalf of the American Life Convention and the Life Insurance Association of America on the Housing and Community Development Act of 1964.

In discussing the title V, sections 506 and 503-insured rural housing lending we made the point that private credit is available to make many of the loans to nonfarmers on properties within the small towns under 2,500 population and on properties adjacent to the larger towns. We made the further point that every such loan which could be directed to private channels reduces the demands on the Farmers Home Administration and allows available funds to be used in making strictly rural loans to farmers where the need is greatest. As we pointed out during our appearance:

"In any event, the terms of the existing act, which provide that the Farmers Home Administration should not make loans where private credit is available, should be adhered to strictly ;" and

"If a proper mechanism were established to determine the availability of private credit in such cases, more funds of the Farmers Home Administration would be available for the strictly rural loans to farmers where private credit is not so readily available."

It has been suggested that we outline a mechanism which could be used to determine whether private credit is available since this is a basic requirement of the existing program. As you know, in most cases this determination is made by a local committee which, although familiar with the practices of local lenders, would not necessarily be familiar with the operations of lenders located in other cities. Many of these lenders are actively seeking loans on a statewide or area basis.

Therefore, our major problem is to place the prospective borrowers in touch with lenders who are seeking these loans. While several methods could be suggested, the following seems to us to have merit. Those lenders who operate statewide or in a particular area of the State would file with the State director