finance any construction of a water and sewer facility if the popula tion in the community is greater than 5,500.

It occurred to me that if the statute were amended so that that figure would be greater, and I don't have a figure in mind at this point, that this would go a long way toward the solution of the problem, if we could feed more money into your agency, for instance, and it seems to me as if you have ways here to create money, so to speak, which might not be available to some of the urban communities, that we might go a long way toward and assist in the solution of this problem. What would you think about that?

Mr. SMITH. That would be a worthy objective, Congressman.

We find throughout the United States there are approximately 30,000 communities that do not have adequate water facilities, and about 40,000 that do not have adequate waste disposal systems.

Now, I must mention in this connection here that we do not have adequate funds to treat the applications which are presently on hand by some considerable amount. If we were to raise the area of responsibility, increase the population limit from 5,500 upward, then we would have additional applications, without additional funds to compensate for this we would increase the problem for the Farmers Home Administration.

Now, also, in this same line of thought, I should mention that our personnel are very heavily loaded at the present time to administer the loan programs that we have and the proper committees in Congress would have to give consideration to adding some personnel to take care of the additional workload.

Mr. WYLIE. You spoke of a new type of credit transfer, and the sale of notes through security dealers by your agency and you suggested that your first sale was for $350 million.

By what procedure did you get that authority? I am not familiar with that.

Mr. SMITH. We worked closely with Treasury and the Bureau of the Budget in developing this procedure. This is a first for the agency and we do take some pride in it.

Mr. WYLIE. Is that provided for by law?

Mr. SMITH. Yes.

Mr. WYLIE. It is in the statute?

Mr. SMITH. This new instrument provides a market tool to sell about 90 individual notes in a bloc. It is only a modification of the regular direct orders. This bloc sale instrument is entered in the market in much the same manner as FNMA or GNMA would sell their securities. We put together the four leading security dealers of the Nation and they underwrote this with about 104 underwriting firms. The issue was all sold on the very day it was offered. We entered the larger commercial money market and we brought some money out into the rural areas of America.

Now, we will have to evaluate this objective and use it again as time progresses. We are now accepted in the money market and we have proven to Government and we have proven to all that we can handle the sale of our paper in a prudent manner.

Mr. WYLIE. Thank you very much for your testimony.

I think, Mr. Chairman, that we might explore this possibility or this potential as an additional source of revenue for Mr. Smith's

agency, and look into the possibility of increasing the amount of rural housing to meet our problems.

Thank you.

Mr. BARRETT. Mr. Wylie, if you have any further questions you may put them in writing to Mr. Smith, and I think you have a good point and you should do that.

Mrs. Sullivan.

Mrs. SULLIVAN. Thank you, Mr. Chairman. Mr. Smith, will you please answer these questions when you go over your transcript so we may have the answers for the record. We must go over to the House floor to vote.

Mr. SMITH. I understand.

Mrs. SULLIVAN. Are we going to have an argument also?

Mr. SMITH. No. I was referring to my previous experience, I still get a little nervous when I hear the bell ring.

Mrs. SULLIVAN. Mr. Smith, how does your direct loan program under the Farmers Home Administration differ from the idea behind the Home Owners Mortgage Loan Corp., in H.R. 13694?

You lend at a below-market rate. You limit the size of the loan, and you require that applicants not be able to obtain financing at reasonable terms elsewhere.

If this program works well for the rural families, and I have always supported it ever since Congressman Raines got us interested in this program in the Housing Subcommittee, why would not the same idea work well for the city families who are now priced out of the housing market by interest rates?

That's question No. 1.

Question No. 2. How long does it take to process an application for a direct loan?

Question No. 3. Once you approve a loan, or are in the process of approving it, don't you try to make sure that the customer, the borrower, can have a house built for the amount you are willing to lend?

I have had some correspondence with Farmers Home on this, involving a disabled constituent in St. Louis, who owns some land in the Ozarks and has been advised by his doctor to change climates. We have been trying to arrange a loan which would enable him to build on his own property and I know you just don't hand the money out without making sure you get a responsible builder to build at least a minimum-standard house at the appraised value of the finished building.

Will you tell us how this works?

Mr. SMITH. I will be glad to answer them.

Mrs. SULLIVAN. Will you please answer them for the record.

(The following reply to Mrs. Sullivan's questions was subsequently received from Mr. Smith:)

Question 1

We interpret the reference to the direct loan program to mean the method by which our rural housing loans are delivered directly to the families. With the exception of a few special purpose types of loans, rural housing loans are made out of the Rural Housing Insurance Fund. After the loans are made, the Farmers Home Administration retains the mortgage and sells the note on an insured basis to private investors, such as trust funds, retirement and pension funds, or any other financial institution or individual interested in purchasing these loans. The proceeds from the sale of insured notes are used to replenish

the Rural Housing Insurance Fund and provide the capital for making aditional loans.

The interest rate from these loans are prescribed by law. The rate for the current fiscal year for families with low and moderate income is 64 percent For families with above moderate incomes, the rate is the same as for Federa Housing insured mortgages; namely, 81⁄2 percent interest plus 1-perceLI insurance charge.

Lower income families who are unable to pay the 64 percent rate for modes homes may qualify for interest supplement assistance. This program, which is similar to the HUD Section 235 assistance, was authorized in the Housing and Urban Development Act of 1968.

Rural housing loans are made only to families who cannot obtain credit at rates and terms they can reasonably be expected to repay from other sources. including a HUD Section 235 insured mortgage. Applications are received and evaluated and the loans are made and serviced through about 1,700 local offices of the Farmers Home Administration.

As we understand H.R. 13694, the bill would authorize the establishment of the Homeowners Mortgage Loan Corporation as an independent agency. This agency would be authorized to make direct loans to families in the middle income range who cannot obtain home financing at reasonable rates of interest not exceeding 6% percent per year. The loans would be processed through HUD and made out of the Homeowners Mortgage Loan Fund. Capital for the fund would be appropriated. Initial appropriations of $2 billion would be authorized for each of the first 5 years and additional amounts would be appropriated as needed.

Such a program could work in the cities. It would, however, be signficantly different from the housing program of the Farmers Home Administration in several respects; namely,

(1) The Farmers Home Administration local county offices make and service the loans. HUD does not, at present, have offices readily available to the families who need the housing.

(2) Private capital rather than appropriated funds is used to provide the funds for the housing loans made by the Farmers Home Administration. (3) Under H.R. 13694, families would need to establish that they are unable to obtain housing credit at 61⁄2 percent. Under existing conditions, all families would be eligible because credit at 61⁄2 percent or less is not currently available from the commercial market. The Farmers Home Administration requires that if a family can obtain credit at rates and terms it could reasonably be expected to repay would not be eligible.

Question 2

The period of time required to process a rural housing loan varies depending on whether the applicant has selected a suitable plan, owns his lot, or he has negotiated with a builder prior to coming to the Farmers Home Administration. Another variable is the backlog on applications in the county office. Assuming all things are favorable, a loan could be processed within 45 days.

Question 3

The Farmers Home Administration makes a diligent effort to maintain effective controls over the quality of construction and disbursement of funds. Inspections are made periodically during the construction and any defects that are noted are reported to the builder and the borrower and corrections are made. Funds are retained in a joint bank account and any payments to builders must be approved by both the borrower and the Farmers Home Administration. Mr. BARRETT. Thank you, Mr. Smith, for your very fine testimony here this afternoon, and all time has expired and the committee will now stand adjourned until 10 o'clock tomorrow morning, at which time we will have Raymond Harold, chairman of the board of Worcester Federal Savings & Loan Association, Worcester, Mass.: Mr. Dennis Blackett, Housing Innovations, Inc., Boston, Mass.; James Linehan, president, Development Corp. of America, Boston, Mass.: and Leon Keyserling Conference on Economic Progress, at 10 a.m.. tomorrow morning.

(Whereupon, at 3:45 p.m., the committee was adjourned to reconvene at 10 a.m., Wednesday, February 25, 1970.)

EMERGENCY HOME FINANCING

WEDNESDAY, FEBRUARY 25, 1970

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

The committee met, pursuant to recess, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. William A. Barrett, presiding. Present: Representatives Barrett, Sullivan, Gonzalez, Hanna, Gettys, Rees, Galifianakis, Bevill, Griffin, Chappell, Harrington, Widnall, Halpern, Mize, Blackburn, Brown, Williams, and Heckler. Mr. BARRETT. The meeting will come to order, please.

We will ask Dr. Keyserling, Mr. Harold, and Mr. Blackett to come to the table, please.

This morning's session marks the close of the House Banking and Currency Committee's emergency housing hearings.

With us on this 14th hearing day is one of the Nation's leading economists with an outstanding record of service to the Government and three Massachusetts men who are involved in pioneer efforts to finance and develop low- and moderate-income housing.

Leon H. Keyserling is widely known to most Members of the Congress by virtue of the fact that he is a former chairman of the Council of Economic Advisers. Now president of the Conference on Economic Progress, Dr. Keyserling has appeared many times before various standing committees of Congress, including this committee.

Testimony will also be given this morning from Raymond Harold, chairman of the board of the Worcester, Mass., Federal Savings and Loan Association. His lending institution, which has assets of $340 million, occupies a unique position in that 80 percent of its outstanding home loans are FHA and VA mortgages, And Dennis Blackett is supposed to be here. We expect him here this morning. He is president of Housing Innovations, Inc., of Boston, a new real estate development concern concentrating on providing low-income housing in that city. Also with us this morning is James F. Linehan, Jr., president of the Development Corp. of America, Boston, which is producing low- and moderate-income housing in urban areas.

Welcome to the hearing, gentlemen. We will begin with Dr. Keyserling and then hear the statements of Mr. Harold, Mr. Blackett, and Mr. Linehan. The hearing will then be open to questions from the committee members.

Gentlemen, in the interest of brevity this morning, I ask you to summarize your remarks with the understanding that your complete statement will be made a part of the hearing record.

Dr. Keyserling, you may proceed as you see fit, but before proceeding I would like to make a statement here. Really, I think Massachusetts ought to be very proud and grateful that it has such a very

fine Member in Congress as our very dear friend and very close friend of mine, the Honorable Harold Donohue, and he has asked me to read this letter this morning because of his inability to be here, and he said:

"My very dear friend, Mr. Raymond P. Harold, president of the Worcester, Mass. (my home city) Federal Savings and Loan Association, is testifying before your distinguished committee this morning. I had planned to try to introduce him but am being held in Massachusetts because of a family funeral.

"Mr. Harold has been a housing adviser to several Presidents, is a recognized housing authority, and one of the most distinguished citizens of our Commonwealth. I shall be, personally, very grateful for the courtesy that I know you will extend to Mr. Harold in his committee appearance. Sincerely, Harold D. Donohue, Member of Congress."

And I want to say, Mr. Harold, that we are very grateful for having Congressman Donohue in the Congress here. He is one of the most knowledgeable persons, a very personable gentleman. He is a real individual and I am certainly sure that the people of Massachusetts are proud of him.

Now, Dr. Keyserling, you may start your testimony in any way you desire to give it. We don't want to limit a very distinguished person like you, but if you summarize

Mr. BLACKBURN. Mr. Chairman.

Mr. BARRETT. Yes, sir, Mr. Blackburn.

Mr. BLACKBURN. Could I ask a question, Mr. Chairman. We have, I believe, three witnesses here. Could we ask each witness to limit his statement to, say 15 minutes, so there would be adequate time for questioning?

Mr. BARRETT. I don't think we can put a limitation on the witnesses, as much as I would like to. I asked them in the interest of brevity to use their discretion, and I am quite sure they will, but we certainly cannot afford to put a limitation on them.

Mr. BLACKBURN. Well, it is going to be very difficult, I am afraid, with the length of some of the statements. I just make that as a request, Mr. Chairman, because we will have some questions.

Mr. BARRETT. Doctor, you may proceed if you are prepared.

STATEMENT OF DR. LEON H. KEYSERLING, FORMER CHAIRMAN,
COUNCIL OF ECONOMIC ADVISERS, CONSULTING ECONOMIST,
AND ATTORNEY; PRESIDENT, CONFERENCE ON
ON ECONOMIC
PROGRESS

Dr. KEYSERLING. Mr. Chairman, and members of the committee, I want to assure the committee that I had no intent at any time of intruding upon the time of the committee with a presentation of my testimony at its prepared length. It is a long statement. It is accompanied by a great many charts, and with that inserted in the record. I will try to be as brief as I can.

Mr. BARRETT. All statements may be submitted in the record without objections and so ordered.