The resulting uneven flow of mortgage credit not only discourages potential mortgage funds from becoming available for housing construction and financing when a legitimate demand actually exists but it also unnecessarily creates disturbances in the building and building supply industries and adds consequently to the unemployment problems of those industries.

Because we are so deeply concerned in improving the mortgage market, we strongly support S. 810 introduced by Senator Sparkman, which we believe would accomplish a great deal toward that end.

We testified before the Senate Subcommittee on Housing last September in favor of this legislation, but want to reiterate a few major arguments in support of this proposal and offer several amendments.

The Mortgage Market Facilities Act would greatly strengthen the role of private enterprise in mortgage lending, and would appear to be consistent with the objectives of the administration and the Congress. The improvement of the conventional mortgage market by no means implies that there is no place for the present agencies of the Federal Government in the mortgage field.

The only way to establish areas in which private enterprise and the Government can operate side by side effectively, however, is to have both operate as efficiently as possible. Otherwise, one replaces the other by default and this is highly undesirable from the standpoint of public interest.

There is no question that there is a legitimate need for the passage of legislation that would bring about the result envisaged in the Mortgage Market Facilities Act.

The necessity for and desirability of insured mortgages and a facility for trading such mortgages has already been eminently demonstrated by the Federal Housing Administration and the Federal National Mortgage Association.

The idea proposed, therefore, is not new; what is new is merely our efforts to rely as much as possible, and whenever it is in the public interest, on private capital and initiative.

In both the insuring corporation and the mortgage trading and debenture corporation, all capital and management functions are private. The only Government money involved is the expense of the Joint Supervisory Board for its first 3 years.

The Government will advance the cost of operating the Joint Board but will be repaid within 10 years through assessment against corporations chartered under this act. The facilities available and benefits to be derived from this legislation would be shared by all segments of the mortgage and housing industries.

The public interest is protected through provisions for public chartering, public supervision and examination, and through the establishment of adequate reserves properly invested.

The American Bankers Association is satisfied that soundly managed corporations chartered under this plan can earn a fair return. on their investment.

We seek Federal charters and Federal legislation for the establishment of mortgage insuring and trading corporations because the mortgage market is a nationwide market, and whatever affects any part of it affects the entire market.

The public interest and the interest of lenders and home buyers will best be served through adequately financed, properly managed and supervised private institutions chartered by the Federal Government. The American Bankers Association recommends the following three amendments to S. 810:

1. The last sentence in section 308 should be changed to read "The board of directors shall elect the officers, determine their powers and duties, and issue regulations which would govern the standards under which this corporation is to operate.'

The last sentence in section 407 should be changed to read "The board of directors shall elect the officers, determine their powers and duties, and issue regulations which would govern the standards under which this corporation is to operate."

This will require the board of directors of these corporaitons to clearly define the standards under which mortgages will be acceptable for insurance and trading. It will also require these boards to establish standards governing the issuance of debentures and all other functions relating to the operations of these corporations.

2. Section 302 (a) (1) should be amended to delete the words "not less than' and substitute in lieu thereof "up to." Under the current bill mortgages must be insured for not less than 100 percent. This change will permit mortgages to be insured up to 100 percent.

This will make it possible for an insurance corporation to insure a larger volume of mortgages in proportion to its reserves than would be possible if all mortgages are fully insured. The purpose of insurance is to standardize conventional mortgages and, thus, prepare them for national marketability.

The amount of insurance, however, can vary without sacrificing the principle of standardization and need to conform only to the requirements of potential investors for such mortgages. Some buyers of insured conventional mortgages will indeed prefer full insurance coverage of the outstanding balance. Others, however, might be fully satisfied with a lesser coverage.

3. Section 307 should be amended by deleting "$5 million" and substituting in lieu thereof "$10 million." This would increase the amount of initial capital that would have to be paid in before an insurance corporation could commence operation.

Mr. Chairman, that concludes the testimony of the American Bankers Association. On behalf of the association, we express our appreciation for having the opportunity to appear.

Senator SPARKMAN. Thank you very much, Mr. Bergmann. It was a very fine and helpful statement.

I want to ask you one or two things. I want to ask you particularly about a statement you make regarding urban renewal. You say, on page 4 at the bottom

If an area, as a result of urban renewal expenditures, becomes economically more productive over a period of perhaps 20 years, such an area may be expected to finance its own redevelopment. In other words, Federal funds can be renaid out of the larger tax base which a redeveloped area would enjoy, if its concep tion was economically sound. Wherever urban renewal projects can be locally financed without the use of Federal funds, this practice should be followed.

Do you mean there, that the Federal Government should participate on a conditional basis, that it will be repaid? In other words, in the nature of a loan?

Mr. BERGMANN. That is correct.

Senator SPARKMAN. Provided the economic rehabilitation is sufficient to enable the redevelopment to pay for it?

Mr. BERGMANN. We believe it should be in loans rather than in the form of grants.

Senator SPARKMAN. But the loans would be conditioned upon this situation developing, is that right?

Mr. BERGMANN. I think I will call on my associate, Doctor Flexner, to answer that.

Senator SPARKMAN. Here is what disturbs me: I don't see how you can know ahead of time that the improvements are going to be economically sufficient to repay the loan.

Dr. FLEXNER. Senator, actually what we mean by this is that today, probably half of all local communities are not financially able— maybe more than half-to handle their own redevelopment. For that reason, obviously, the Federal Government has to step into it if anything is going to be done at all.

But in determining whether a redevelopment program should be undertaken, one of the criteria has to be economic desirability. How do you determine economic desirability—whether a particular project will, over the life of this project, become financially sustainable.

This really means that because of the higher tax base, for example, which should result from any redeveloped area, the higher earning power of the people who live in it, the higher appraisals of the properties in that area, and so on, this should make the area a more productive community. Otherwise, there is no reason for redevelopment.

If it becomes a more productive community you can determine in advance, tentatively at least, whether this community over a 20-year period can pay for this development. This is the reason for our suggestion, so that this be definitely established.

Whether a community-I don't think the Federal Government can enter into any loan program because this is too tentative. But the Federal Government should at least make certain that the community can pay for this, and quite possibly some agreement between the Federal Government and local authorities should be entered into that would call, under certain conditions, for at least partial repayment of the initial grant.

Senator SPARKMAN. Of course the urban renewal authority, or whatever the political body is that handles it, sells the land to private developers.

Is the repayment to be made by the authority, or the city itself, or the political subdivisions? Do they enter into the agreement to repay? Dr. FLEXNER. There are a number of ways to go about it. Some European governments, for example, the local communities issue debentures which the Central Government purchases, and these debentures later become due over time. This is one way it can be done.

Senator SPARKMAN. Let me say this, without spending more time upon it: I, in my own thinking, and perhaps even in arguing cases of urban renewal at times, have often pointed out that the tax revenues that will be received from the redevelopment will in the long run pay for the project. I realize that most of those taxes go to the local government rather than to the Federal Government. But where incomes are generated, the Federal Government stands to profit also.

A great example of urban renewal has been the project in Southwest Washington. I have watched that develop over the years. At times, I have become very impatient with the length of time required for its development.

But when I look at all of that acreage down there now, where we used to have some of the most miserable slums that any city in all the world had, and I see these new buildings going up, and I realize that the tax valuation of the property down there-when it is eventually completed-will probably be hundreds of times as much as it was before. Of course, most of that benefit comes to the local government, but at the same time you are generating income for the Federal Gov

ernment.

I wonder if we are not better off to look at it from that standpoint, rather than trying to work out something which you say would be tentative and it seems to me would be rather tenuous and tortuous, too.

Dr. FLEXNER. I think you are absolutely correct in that. We have a good motive for our view. The $1.4 billion-we assume that figure is correct; we can't testify for it or against it specifically, it is probably all right-this actually is a very small figure for the job that needs to be done. Yet the Government cannot underwrite a larger figure without probably disturbing our monetary and price aims.

My feeling the feeling of the association-is that the job that needs to be done is tremendous, and probably could be undertaken more intelligently with the aims we have if the Federal Government, with the amount of dollars it has available, could enter into some kind of agreement with the local government of this nature that would enable a much larger proportion of deteriorated property to be renewed. Right now we are doing it very slowly.

Senator SPARKMAN. I think it is a very fine suggestion, and I am glad to have it. I am just disturbed by the practical difficulties. Senator BENNETT. Will the Senator yield?

Senator SPARKMAN. Yes.

Senator BENNETT. As I have listened to this discussion, this idea has occurred to me. I haven't had time, obviously, to think through all its implications.

But suppose the contract with the local urban renewal authority provided that at the time the contract is entered into, a record must be made of the existing tax base in the area. And that beginning at a stated time after the completion of the project, say 2 or 3 years, the 10 percent of the increased revenue provided by the increased tax base should be paid back to the Federal Government into a revolving urban renewal fund, to be used in other cities. That wouldn't be difficult to operate or enforce. And provide that this obligation to pay into the revolving fund should continue for a stated period of

years.

You don't know whether you would get all your money back or a part of it, depending on the success of the project. But this might be a self-generating source of funds for the urban renewal program and help increase the potential without increasing the burden directly on the Federal taxpayer.

Dr. FLEXNER. This is quite right, Senator. This is the way it is done with some European governments, where the federal govern

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ment buys debentures from the local areas, and these are repaid gradually over a period of time. And wherever the expected tax returns are not quite as much as is expected, the maturities are recast, still repaid, but it is recast to be consistent with the actual results. I don't think it is administratively impossible.

Senator SPARKMAN. I wonder if you would elaborate on this in a statement and let us have it, perhaps giving us some illustrative examples.

Dr. FLEXNER. I would be very glad to do that.

Senator SPARKMAN. It is certainly thought provoking.

Senator BENNETT. I hope you will include a study on the idea that I have suggested this morning.

Dr. FLEXNER. Yes, sir. I would like to consult with your office on that.

Senator SPARKMAN. Thank you very much, gentlemen. We appreciate your appearance.

Our next witness is Mr. Jim Steiner, manager of the construction and community development department of the Chamber of Commerce of the United States, who is accompanied by Mr. Evans and Mr. Hallenbeck.

STATEMENT OF JAMES J. STEINER, MANAGER OF THE CONSTRUCTION AND COMMUNITY DEVELOPMENT DEPARTMENT, CHAMBER OF COMMERCE OF THE UNITED STATES; ACCOMPANIED BY HARVEY G. HALLENBECK, JR., AND S. HOWARD EVANS, NATIONAL CHAMBER COMMUNITY DEVELOPMENT SPECIALISTS

Senator SPARKMAN. We have your statement. The full statement will be printed in the record. You may proceed as you see fit. And, for the benefit of the record, Mr. Steiner, will you identify the gentlemen accompanying you?

Mr. STEINER. Yes, sir. On my left is Mr. Hallenbeck, and on my right is Mr. Evans.

I would like to comment that there is a typographical error on the cover of our statement. It shows the House bill number and the date of the bill of the House. All is correct beyond the cover.

I will proceed with the statement.

My name is James F. Steiner. I live in Falls Church, Va. I am manager of the construction and community development department of the Chamber of Commerce of the United States, and secretary of the national chamber's construction and community development committee.

With me are my associates and cowitnesses, Mr. Harvey G. Hallenbeck, Jr., of Alexandria, Va., who has directed a very significant study of Federal urban renewal and public housing programs; and Mr. S. Howard Evans, of Washington, D.C., national chamber community development specialist.

All three of us have for many years been close observers of Federal housing and community development legislation and programs. We have visited many communities to study community development activities. And we have been participants in the creation of a comprehensive plan for balanced community development—a plan based on the use of local resources, instead of Federal subsidies.