specified area or areas within its region in which the subcommittee found a lack of adequate credit facilities for these loans.

We hope you will give serious study to our plan because we believe it affords a way for private financing institutions to handle the problem of mortgage credit unavailability in small communities and remote areas and for minority groups. We have given a great deal of study to this matter and we believe there is an awareness on the part of financing institutions of the desirability of our proposal. We are confident, therefore, that it can be made to work effectively.

I want to thank you, Mr. Chairman, and will be glad to answer any questions, if you have any.

The CHAIRMAN. Thank you, sir. You have been very helpful and your statement, I think, speaks for itself. It is very clear.

Do you gentlemen have a statement that you care to read? This is your full and complete statement?

Mr. SHANKS. Yes, sir.

The CHAIRMAN. Then, what are these documents here? Do you want them placed in the record?

Mr. SHANKS. That was a statement made in August of 1953.

The CHAIRMAN. Without objection, the national policy of housing and mortgage lending, a statement of life-insurance company views of August 1953, will be placed in the record and the proposed legislation in the form of-this is an individual bill, not an amendment?

Mr. SHANKS. We have set that up as a separate bill.

The CHAIRMAN. You prefer to have it as a separate bill, not an amendment to the exsting bill?

Mr. SHANKS. Either way. Just to get it before you.

The CHAIRMAN. Without objection, a proposed bill by the American Life Convention and Life Insurance Association of America, to encourage the investing of funds in remote areas and sections where funds are not available, will be made a part of the record at this point. (The documents referred to follow :)

A BILL To encourage and facilitate the flow of mortgage credit into remote areas and small communities and without regard to race, creed, or color, through the voluntary cooperation and effort of private lending institutions

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Mortgage Credit Act of 1954."

DECLARATION OF POLICY

SEC. 2. It is declared to be the policy of Congress

(a) To seek the constant improvement of the living conditions of all the people under a strong, free, competitive economy, and to take such action as will facilitate the operation of that economy to provide adequate housing for all the people and to meet the demands for new building;

(b) To provide a means of financing housing within the framework of our private enterprise system and without vast expenditures of public moneys;

(c) To encourage and facilitate the flow of funds for housing credit into remote areas and smaller communities where such funds are not available in adequate supply and without regard to race, creed, or color; and

(d) To assist in the development of a program consonant with sound underwriting principles, whereby private financing institutions engaged in mortgage lending can make a maximum contribution to the economic stability and growth of the Nation through extension of the market for insured or guaranteed mortgage loans.

DEFINITIONS

SEC. 3. As used in this Act, the following terms shall have the meanings respectively ascribed to them below, and, unless the context clearly indicates otherwise, shall include the plural as well as the singular number;

(a) The term "insured or guaranteed mortgage loan" means any loan or the security therefor (1) insured under the National Housing Act, as amended, or (2) guaranteed or insured under the Servicemen's Readjustment Act of 1944, as amended, and made for the construction or purchase of a family dwelling or dwellings.

(b) "Private financing institutions" means life insurance companies, savings banks, commercial banks, mortgage banks, and savings and loan associations. (c) "Administrator" means the Housing and Home Finance Administrator. (d) "State" means the several States, the District of Columbia, and Territories and possessions of the United States.

NATIONAL VOLUNTARY MORTGAGE CREDIT EXTENSION COMMITTEE

SEC. 4. There is hereby established a National Voluntary Mortgage Credit Extension Committee, hereinafter called the "National Committee", which shall consist of the Housing and Home Finance Administrator, who shall act as Chairman of the National Committee, the Chairman of the Board of Governors of the Federal Reserve System, and fourteen other persons appointed by the Administrator as follows:

(i) Two representatives of each type of private financing institutions; (ii) Two representatives of builders of residential properties; and

(iii) Two representatives of real-estate boards.

In selecting and appointing the members of the National Committee, the Administrator shall have due regard to fair representation thereon for small, medium, and large private financing institutions and for different geographical areas.

REGIONAL SUBCOMMITTEES

SEC. 5. (a) As soon as practicable, the National Committee shall divide the States into regions conforming generally to the Federal Reserve districts and the Administrator, after consultation with the other members of the National Committee, shall, for each such region, designate five or more persons representing private financing institutions and builders of residential properties in such region to serve as a regional subcommittee of the National Committee for the purpose of assisting in placing with private financing institutions insured or guaranteed mortgage loans as hereinafter set forth. In designating the members of each such regional subcommittee, the Administrator shall have due regard to fair representation thereon for small, medium, and large financing institutions and builders of residential properties and for different geographical areas within such regions.

(b) Each Federal Reserve bank is authorized and directed, upon the request of a regional subcommittee, to permit such subcommittee to meet from time to time in the offices of the bank and to furnish to the subcommittee such staff assistance as may be reasonably necessary for the purpose of keeping minutes of the meetings of the subcommittee and assisting it in the performance of the functions hereinafter set forth.

FUNCTION OF NATIONAL COMMITTEE AND OF REGIONAL SUBCOMMITTEES

SEC. 6. It shall be the function of the National Committee and the regional subcommittees to facilitate the flow of funds for residential mortgage loans into areas or communities where there may be a shortage of local capital for, or inadequate facilities for access to, such loans, and to achieve the maximum ntilization of the facilities of private financing institutions for this purpose by soliciting and obtaining the cooperation of all such private financing institutions in extending credit for insured or guaranteed mortgage loans, without regard to race, creed, or color, wherever consistent with sound underwriting principles.

SEC. 7. The National Committee shall study and review the demand and supply of funds for residential mortgage loans in all parts of the country, and shall receive reports from and correlate the activities of the regional subcommittees. It shall also periodically inform the Commissioner of the Federal

Housing Administration and the Assistant Deputy Administrator for Loan Guarantee of the Veterans' Administration concerning the results of the studies and of the progress of the National Committee and regional subcommittees in performing their function, and shall to the extent practicable maintain liaison with State and local government housing officials in order that they may be fully apprized of the function and work of the National Committee and regional subcommittees. The Administrator shall annually make a full report of the operations of the National Committee and the regional subcommittees to the Congress.

SEC. 8. (a) Each regional subcommittee shall study and review the demand and supply of funds for residential mortgage loans in its region, shall analyze cases of unsatisfied demand for mortgage credit, and shall report to the National Committee the results of its study and analysis. It shall also maintain liaison with officers of the Federal Housing Administration and of the Veterans' Administration within its region in order that such officers may be fully apprized of the function and work of the National Committee and regional subcommittees. It shall request such officers to supply to the subcommittee information regarding cases of unsatisfied demand for mortgage credit for loans eligible for insurance under the National Housing Act, as amended, or for insurance or guaranty under the Servicemen's Readjustment Act of 1944, as amended.

(b) A regional subcommittee shall render assistance to any applicant for a loan, the proceeds of which are to be used for the construction or purchase of a family dwelling or dwellings, upon receipt of a certificate from such applicant, stating that:

(i) Application for such loan has been made to at least two private financing institutions, or in the alternative to such private financing institution or institutions as may be reasonably accessible to the applicant;

(ii) The applicant has been informed by the above-mentioned private financing institution or institutions that funds for mortgage credit on the loan are unavailable; and

(iii) The applicant is eligible for insurance or guaranty under the Servicemen's Readjustment Act of 1944, as amended, or consents that the mortgage to be issued as security for the loan be insured under the National Housing Act, as amended.

Upon receipt of such certification from an applicant the regional subcommittee shall circularize private financing institutions in the region or elsewhere and shall use its best efforts to enable the applicant to place the loan with a private financing institution. It shall render similar assistance to any applicant for a loan, the proceeds of which are to be used for the construction or purchase of a family dwelling or dwellings, upon receipts of a communication from a loan officer of the Veterans' Administration stating that the applicant has applied for a direct loan and is eligible for insurance or guaranty under the Servicemen's Readjustment Act of 1944, as amended. In order to encourage small or local private financing institutions to originate insured or guaranteed mortgage loans, it may also render similar assistance to private financing institutions in locating other private financing institutions willing to repurchase such mortgage loans on a mutually satisfactory basis.

(c) In the performance of its responsibilities under subparagraph (b) of this section, a regional subcommittee may at its discretion (i) request the National Committee to obtain for it the aid of other regional subcommittees in seeking sources of mortgage credit, (ii) request and obtain voluntary assurances from any one or more private financing institutions to make funds available for insured or guaranteed mortgage loans in any specified area or areas within its region in which the subcommittee finds that there is a lack of adequate credit facilities for such loans.

REGULATIONS OF ADMINISTRATOR

SEC. 9. The Administrator, after consultation with the National Committee and in his capacity as Chairman thereof, shall have power to issue general rules and procedures for the effective implementation of this Act and for the functioning of the regional subcommittees, pursuant to the provisions hereof and not in conflict berewith.

GENERAL PROVISIONS

SEC. 10. No act pursuant to the provisions of this Act and which occurs while this Act is in effect shall be construed to be within the prohibitions of the antitrust laws or the Federal Trade Commission Act of the United States.

SEC. 11. If any provision of this Act, or the application thereof to any person or circumstances, is held invalid, the remainder of this Act and the application of such provision to other persons or circumstances, shall not be affected thereby. SEC. 12. (a) This Act and all authority conferred hereunder shall terminate at the close of June 30, 1957.

(b) Notwithstanding the foregoing Congress, by concurrent resolution, may terminate this Act prior to the termination date hereinabove provided for.

NATIONAL POLICY ON HOUSING AND MORTGAGE LENDING—A STATEMENT OF LIFE-INSURANCE COMPANY VIEWS

The life-insurance companies are greatly interested in sound national policy with respect to housing and mortgage lending. It goes without saying that the life companies are vitally concerned about improvement in standards of health and well-being of the American people-in which good housing plays such a prominent part. Beyond this, they are well aware of the important role which a thriving residential construction industry plays in general economic prosperity. At the same time they have an equal interest in seeing that housing is not overproduced, thus causing all the difficulties which must eventually follow. More directly, the life companies are interested in national housing and mortgagelending policy because of their extremely important position as investors in home mortgages. Governmental policy affects the operation of the entire residential mortgage-lending system of the country, so that it is natural for the life companies to have views on the various policy questions.

THE EXTENT OF LIFE-INSURANCE COMPANY INVESTMENTS IN RESIDENTIAL

MORTGAGES

Before turning to the policy questions to be discussed in this statement, it will be helpful to review briefly the extent of life-insurance company investment in residential mortgages, as well as to consider some of the forces which govern their investments as a whole.

The life companies have for many years found home mortgages to be an attractive investment, but their activity in this field has been especially noteworthy during the period following World War II. During the 6 years 1947-52, inclusive, the life companies of the Nation increased their holdings of mortgages on 1-4 family residences from $2,570 million to $11,800 million, or a net increase of $9,230 million. This sharp increase was second only to that of $10,750 million registered by the saving and loan associations during the same period, and it exceeded the net increase of $4,147 million for the mutual-savings banks and $6,674 million for the commercial banks. At the end of 1952 life-insurance companies held 20.3 percent of the total outstanding mortgage debt on 1-4 family residences, as compared with 30.2 percent for the saving and loan associations, 19.3 percent for the commercial banks, and 10.6 percent for the mutual-savings banks. The remainder was held by the Federal National Mortgage Association, individuals, and other institutional investors.

The life-insurance companies are by far the most important investors in Government insured and guaranteed mortgages. Their holdings at the end of 1952 of $5,681 million FHA mortgages and $3,347 million VA mortgages, for a total of $9,028 million of insured and guaranteed mortgages, far exceeded such mortgage holdings by the other principal institutional investors. Commercial bank holdings amounted to $6,687 million, mutual savings banks held $5.405 million, and saving and loan associations had $4,304 million, of which $3,398 million were VA mortgages. During the period 1947-52 inclusive the life-insurance companies expanded their holdings of FHA mortgages by $4,453 million and their VA mortgages by $3,091 million, by far the greatest increase of any investor. Finally, the life-insurance companies held close to $3.5 billion of mortgages on multifamily housing units at the end of 1952, a substantial part of which were accounted for above in Government insured and guaranteed holdings. These holdings are above and beyond the $461 million invested directly at the end of 1952 in housing projects.

Adding together holding of mortgages on 1-4 family residences and mortgages on multifamily dwelling units, the life-insurance companies had total residential mortgage holdings of $15.3 billion at the end of 1952, amounting to 21 percent of their total assets of $73.4 billion.

This brief summary indicates the substantial role of life companies in housing and mortgage lending and demonstrates the readiness of the companies to aid the American people in the long-term financing of their housing requirements.

FORCES GOVERNING LIFE-INSURANCE COMPANY INVESTMENTS

Despite the sharp increase in residential mortgages in recent years, life-insur ance companies have by no means invested all of their funds in this field. Instead, they have continued their traditional and sound policy of building a welldiversified investment portfolio, including the bonds and stocks of industrial enterprises, public utilities, and railroads, Government securities, State and municipal obligations, commercial and industrial mortgages, foreign securities, and real estate.

Some measure of the overall part played by life-insurance companies in the postwar period as suppliers of capital funds is provided by the following figures. During 1946-52 inclusive, the life companies increased their holdings of industrial and miscellaneous bonds by $11.8 billion, public utility bonds by $6.7 billion, railroad bonds by $597 million, and stocks of all types by $1.4 billion. Mortgage holdings of all types (residential, commercial and industrial, and farm) were increased by $14.6 billion. A substantial part of this enormous increase in investments in the private sectors of our national economy was made possible by a net reduction during 1946-52 of $10.3 billion in holdings of United States Government securities. Financing provided by the life companies has played an immensely important role in the expansion of industrial capacity we have experienced which is of cardinal importance to our military-preparedness program. Certain clearly defined objectives underlie the pattern of life-insurance company investments. The life companies are acutely aware of the position of trusteeship which they assume in investing the insurance savings of some 88 million policyholders. Therefore, the foremost objective is to invest these savings with the maximum safety. This explains the high quality of life company investments and the emphasis placed upon obtaining investments free of speculative risk. It also explains the stress placed upon a well-diversified portfolio. the same time, however, life companies labor diligently to earn the highest possible rate of return consistent with safety of principal, for the higher the rate of investment return the lower the net cost of life insurance to policyholders. A relatively better rate of return, and hence a lower net cost for insurance, is thus at the heart of competition for sales of new policies in an industry characterized by keen competition between companies.

At

This vigorous competition between companies to obtain the best net yields on investments explains the sensitivity of life companies to changes in net yield on the various types of investments. The pattern of yields existing in the market at any one time on industrial bonds, utility bonds, commercial mortgages, conventional residential mortgages, and Government-insured and guaranteed mortgages is in a state of delicate balance. Life companies watch this yield pattern carefully and are quick to redirect their investments into areas where net yields improve in attractiveness in response to demand and supply forces. For example, if as a result of market forces the net yield on high-grade industrial bonds should rise relative to that on home mortgages, it is natural that life company funds would tend to shift toward greater investment in industrial bonds. Of course, the requirements of a balanced portfolio will always serve to keep such shifts from going to extremes.

This sensitivity of life company investments to changing yield spreads has great social advantages because it insures as a general rule that savings will be channeled into uses where there is greatest need for them. Interest rates are merely prices paid for the use of borrowed money and like any other prices they are established basically by conditions of demand and supply in the market place. This system of interest rates has the function in our national economy of influencing the distribution of savings to their most productive uses. It is for this specific reason that, as will be discussed more fully later, all interest rates must be permitted to move freely in response to demand and supply forces. Wherever interest rates on certain loans, e. g., FHA and VA mortgages, are prevented by administrative and legislative fiat from rising during a period of capital stringency, it is only natural for capital funds to shift into markets where rates reflect demand and supply conditions.