B. State Authority Funds Awards of State Authority funds as Basic Deposits will be made only in the absence of linked-deposit proposals at competitive interest rates. COMMUNITY SERVICES PROGRAM Fund Allocation: $150,000,000 The Community Services Program awards additional State funds to banks of demonstrated special service to their communities. In its initial year, the Program gave special recognition to banks rendering such services by way of public programs, e.g., guaranteed student loans, and Small Business Administration loans. This year the Program has been expanded to cover such additional categories as loans to schools, colleges, hospitals, agricultural credit, and purchase of local tax anticipation warrants. The additional categories were developed with the assistance and advice of more than 300 banks throughout the State. DEPOSIT CRITERIA 1) Conformity with applicable laws, regulations 2) 3) Participation in qualified loan or investment No awards will be made to the major Chicago 1) 2) DEPOSIT TERMS Most awards to be effective April 1, 1969, for Interest rate minimums will be established at METHOD OF ALLOCATION Awards will be made through a process of a weighted mathematical proration between the amount available for allocation, and the relationship of a bank's individual activities in recognized areas to the total of all such activities by all banks applying for deposits under this Program. The actual proration will be accomplished by computer, in order to assure accuracy of computation, and earliest bank notification. Mr. SWIRE. IBEW does have a pension fund and they are loaning it out to a number of people, you see. The IUE pension fund applies only to our staff. By and large, I think that a large number of pension funds would be doing well, would do better than they are doing now, not all of them, if they averaged 6 percent at the present time. Now, the insured funds are doing better than that, see. But your noninsured plans, I would assume many of them average less than 5 percent. Now, some are doing better. Mrs. SULLIVAN. Well, I frankly have no personal knowledge of what return they get on these funds, but as you say, they are growing by leaps and bounds. And I believe your idea of having some sort of a plan for this is certainly worth investigation and consideration by the Congress. The funds are so numerous and are growing so fast that some kind of planned action should be taken. I just heard of one proposal down in Panama, by one union, which is going to build some 1,800 units of housing. This housing is to be offered to their own members to buy, because no one is doing any building down there. Of course, I think it is clever of them to do it, because it is going to encourage the worker to join this particular union instead of another, with the idea of buying a house for himself that he can't buy in any other way. Whether or not it is good to use the funds of a pension plan for their own particular workers may be something else to consider. Thank you. Mr. Brown. Mr. BROWN. Thank you, Madam Chairman. If I may continue that line of questioning, Mr. Swire, what would be your attitude, or the attitude of your pension fund if a mortgagebacked security guaranteed by the Government were available for investment? Mr. SWIRE. I think it would be excellent. Let me say this, in Canada we have a small pension fund in a number of small companies and they have pooled arrangements, some of the banks there. Canada Trust Co. has got an arrangement whereby they have mortgaged a number of houses, the same as you have a commingled fund here in this country, and it is very successful. They are earning over 10.1 percent interest. which I think is too high. Mr. BROWN. Now, let me move away from that one step and ask you if the nature of the instrument, the problems of the different legalities, both of substance and form, of the mortgage instrument among the States, discourage you from investing directly in mortgages? Mr. SWIRE. I am not an investment man. What I do is negotiate with large corporations mostly, and I don't know enough of the details of that form to answer at all. wit Mr. BROWN. But this has been mentioned by practically every ness from the industry. They have said that the nature of the instru ment and the different legal rights that accrue to a holder, that these things are part of the impediments to the involvement in the mortgage market today, and I was wondering if this is true. Mr. SWIRE. I just can't answer that. Mr. LANDT. Madam Chairman, may I answer that? Mr. BROWN. I would be pleased to have Mr. Landt respond. Mr. LANDT. I am a director of an organization that was organized 12 years, 13 years ago called the Investors Central Management Corp., headquartered in New York and set up for the express purpose of breaking the pension funds in order to get money for FHA and VA mortgages. And we went along fine and just started doing great and we had a lot of them sold on it, and the bad days of 1965 and 1966 came along, and they stopped buying. They kept buying mortgages, but they liked to buy a million dollar mortgage. They don't want to have to fool with all these little pieces of paper. And they could also get higher yields on the big loans. I don't know whether that answers your question, but an organization is in existence today, and it is catering to what the fund was, which is not FHA and VA loans. Mr. BROWN. One further question and that is that many of the witnesses who have testified before the committee have also supported the concept of noninterest, or nontaxable interest income. Apparently this is on the basis that this provides an incentive to invest in this area and to get interest income as distinguished from gain from investment in securities. Here again we are talking about one mass of financial resources which presently is improperly directed into the commercial and industrial area rather than the housing area. In order to redirect the use of these resources, what would be your comment about limiting the deductibility of interest to a certain rate? In other words, few today are paying 10 or 12 percent for housing money, are they? The individual certainly isn't. Mr. LANDT. Well, if I may answer that first, I would not like that idea speaking for the National Association of Real Estate Boards because deductibility of interest is a good sales point in selling a house. Mr. BROWN. But I am not suggesting a repeal of interest deductibility. I am suggesting that one could not deduct interest in excess of, say 7 percent of one's outstanding indebtedness. Mr. SWIRE. You have certain mortgages a lot more than that, a lot more than 10 percent, too. Mr. BROWN. Oh, yes. Mr. LANDT. I would rather see it the way the bill proposes. Mr. BROWN. Of course, when you provide tax reduction incentives what you are doing is jeopardizing your fiscal situation in Government because you are taking away revenues. The way I suggest would result in increasing revenue. Under a proposal permitting deduction of an amount of interest income from taxable income, you would lessen available resources to Government. Mr. LANDT. That is true. Mr. BROWN. No other questions, Madam Chairman. Mrs. SULLIVAN. Mr. Galifianakis. Mr. GALIFIANAKIS. Madam Chairman, it looks like the whole time of the committee has expired and I would like to thank all the panel for their testimony. In particular, I would like to single out my constituent, Mr. Landt, for his instructive and constructive testimony. And I would like to add to his curriculum vitae that he has had very wide experience in homebuilding and the mortgage market, and we do appreciate his testimony and his presence today. He is a very distinguished Tar Heel and North Carolinian. Also backing him up |