mortgages to meet market conditions equal to the authority he has for single-family homes.

Four of FHA's programs have a 54 percent legal maximum permissible interest rate. These include the section 207 multifamily rental program, a mainstay of our rental housing industry, and the section 213 cooperative housing program. It is quite an anomaly to have such programs as sections 220, 221, 231, and 232 bear interest at 52 percent while section 207 is limited to 54 percent. It has become exceedingly evident that the FHA Commissioner and the Secretary of the Housing and Urban Development do not change interest rates independent of other Federal authorities nor without attention to congressional feelings. But the mortgage market is part of the national money market and the FHA rates must be responsive to that market. It is abundantly evident that legislative limitations that prohibit such response merely distort the flow of available funds to the areas of demand which are not so limited.

The mortgage market today is considerably different from what it was in the days when Congress first established the precedent of establishing maximum interest rates by legislation. Yield spreads between mortgages, Government bonds and corporate securities have narrowed. Insured and guaranteed mortgages are much more widely accepted and understood by investors. The result is that mortgage interest rates are today far more responsive to general money market conditions, whereas in the past they frequently lagged far enough behind to permit legislation to be passed to avoid maladjustments in supply. Under today's conditions serious disruptions can occur in the flow of mortgage money if interest rates are not adjusted promptly in response to market conditions. Congress has this year voted such authority for the Administrator of Veterans Affairs and should do so for FHA multifamily programs. Attached to our statement you will find amendments to carry out these suggestions.

S. 3116

S. 3116 would establish a section 203 (1) mortgage insurance program in FHA authorizing the Commission to insure homes constructed other than for year-round occupancy. A number of Federal programs in the Department of the Interior and the Department of Agriculture concern themselves with the stimulation of economic activity in rural areas where economies have suffered as a result of changing farm production methods. Many people with increased leisure time could utilize these recreation facilities if some moderately priced finacing were available for inexpensive second homes. At present many of these areas are practically without financing while in others the only financing we know of involves discount, or time price loans, with the high interest rates normally associated with consumer finance. Under these circumstance progress in developing the recreation potential in these areas has been seriously impeded.

S. 3116 would authorize the Secretary, through FHA, to establish a mortgage insurance program with modified construction requirements, recognizing that the properties are not intended for year-round occupancy. Many individual investors with whom we have talked have expressed the desire and willingness to participate in this pro

We feel we can assure the Congress that if this bill is adopted our industry can make a substantial contribution to the efforts to revitalize depressed rural areas without cost to the Government. We urge your favorable consideration.

We would like to offer a word regarding timing on this measure. It is anticipated that FHA would have to establish some new property and location standards for this program. Attention will be given to the preservation of natural beauty and the prevention of pollution. It is likely, based on past experience, that at least a year will elapse between the passage of legislation and any significant action under the program. It takes this much time to draw up such standards, disseminate information on them, and for builders and buyers to make their plans. Thus it is not likely that the enactment of this legislation now would have any adverse effect on the present tight mortgage money market nor would it stimulate nonessential construction during this year. It would, however, put us in a position to move ahead in this field forcefully after the next year.

S. 3215

S. 3215 would authorize FHA to insure loans, and DHUD to make direct loans, to construct group medical practice facilities. We believe this legislation is unnecessary. So far as we have been able to determine, the supposed need for such legislation arose from a few isolated cases of difficulty, not from any widespread lack of funds nor any reluctance of lenders generally to take this kind of risk.

We were interested to note that in the testimony of Wilbur J. Cohen, Under Secretary of the Department of Health, Education, and Welfare, on March 1, before the Housing Subcommittee of the House, that he did not offer any figures demonstrating a lack of adequate group medical practice facilities, or funds to finance same. The dated figures he did offer indicated only there has been some growth in the concept of group medical practice. This, in itself, does not suggest any lack of ability to finance adequate structures in which to practice.

We cannot find any evidence of any shortage. I might mention that while testifying before the House committee, I was asked to review our companies' activity in this field over the last 10 to 15 years, reporting the rate and term, what had happened to the loans, and whether we had turned down any loans. I prepared such a report in considerable detail and submitted it to them and it will be available to you if you so wish, Senator Sparkman. The crux of it however was that out of all of the loans, some 30 loans, over 10 to 12 years, while we had lost some of the loans on which we worked, we had never turned down group medical clinic loans. In the months since this program was proposed we have looked into this question. The director of our research department advises us that figures on this particular type of structure are apparently not collected by any Government agency. Nor do our own statistics, other than those I just cited, shed any light on this subject. However, we have conducted an informal survey.

Among our members we have yet to find any indication of difficulty in financing medical office buildings of the type we understand would

be financed under this legislation, as opposed to private or public hospitals which would care for bed patients.

In February of this year the Mortgage Bankers Association's Washington committee, executive committee and board of governors representing mortgage bankers and investors from all parts of the Nation, unanimously approved the following recommendation:

That MBA oppose H.R. 9256, identical to S. 3215, citing in particular that there are funds readily available in the private market for such facilities, and that this program is totally unnecessary.

With the heavy burdens already on the U.S. Treasury, with the proliferation of programs FHA already has to administer, with no figures to indicate a need, and with the preponderance of evidence from lenders indicating that there is no unmet need, we urge you to vote against S. 3215.

S. 2842 AND S. 2977

With reference to S. 2842 and S. 2977, the major feature of S. 2842— the demonstration cities bill-and titles I and IV of S. 2977-the Urban Development Act of 1966-is the relationship which would be established between the Federal Government and other governing bodies. As we understand it, this would extend the concept of creative federalism to urban development and redevelopment activities. It is this aspect of these measures which we feel to be deserving of the closest scrutiny.

We, as much as any group, are aware of the problems which affect our urban areas today. As stated previously, we deal in a wide range of real estate loans. Each of these is preceded by a real estate appraisal scrutinizing the past, present, and future value of the land and its improvements. Thus we are daily made aware of the trends of development and decay in our individual markets.

For many years we have worked originating and servicing loans under the many programs of FHA. No industry group originates or services so many different kinds of FHA loans designed to solve so many of the problems of housing as do mortgage bankers.

It has been apparent to us, as we judge it also is to the administrators at DHUD, that physical improvements alone will not suffice. The objective of coordinating programs dealing with social ills with the programs for physical improvements is desirable. So, too, is the objective of improved intergovernmental cooperation. But we do not feel these measures before you today should be enacted, for the following reasons:

First is the question of timing. DHUD has two major tasks before it without the addition of this legislation. So far, DHUD has not even been able to organize itself internally. Although an organization chart was issued on February 24, we have not seen official notice of transfer of functions called for.

The "Reporter" magazine stated in its March 24 issue:

At present more than 40 different Federal programs provide aid for urban development, yet the most careful of studies that of the Advisory Commission on Inter-Governmental Relations-fails to reveal "any evidence of a unified urban development policy."

DHUD has authority in its existing legislation to take the first steps toward achieving coordination of Federal efforts. But we do

not believe they are ready to start the task of coordinating State and local efforts. Until DHUD can set its own house in order and make some progress in the much needed improvement of Federal coordination, we do not believe it necessary or desirable to grant still further authority.

The second task of DHUD is to implement the programs enacted in the housing legislation last year. There is much to be done before we can judge the merits or these programs and assess the need for additional ones.

Second, it appears to us that the kind of relationship between governmental bodies proposed to be established may well not achieve the results sought by the bills' proponents.

The concept that Federal funds will be provided to finance programs initiated and executed at the local level has not proved workable. OEO was one of the first agencies to undertake programs on this basis, and already Congress is demanding tighter administration to avoid waste and outright misuse of funds.

Experience has always been that every minor abuse of a Federal program is followed by additional safeguards gradually vesting increased control in the Federal administrators. Although the bills' proponents deny that there will be undue Federal control, history has amply demonstrated the need for it where Federal funds are utilized.

These programs are supposed to stimulate urban development action by local and State governments. Although they may provide some limited stimulus, and the flurry of mayors coming to town to urge passage of the bills indicate they have, we fear the stimulus will be largely limited to the cities chosen for demonstration. The effect may well be depressive on all other cities.

If passed as proposed, this program would not demonstrate the value of local action or local programs. It is based on greater local use of Federal programs and Federal money. For those cities fortunate enough to be selected it might prove very effective. However, for all the other cities the incentive would simply be to wait their turn, or lobby as hard as possible for extensions of the concept. If this were done, the costs would reach massive proportions, probably far larger than we can afford.

We believe that far more thought should be given to the question of how to stimulate local action and private investment. Although it may mean another year's delay in getting this effort going, in the long run it may prove to be far more effective.

The costs associated with this proposal cannot be overlooked. The question has arisen whether the demonstration cities program might not create such a demand for funds as to have a detrimental effect on the urban renewal effort in other cities. In view of the present state of our national economy we do have to face up to the fact that there is some limit to what we can spend in this effort and whether we are willing to sacrifice modest progress in many cities for a crash program in a selected few.

A third objective of these proposals is to improve intergovernmental relations. This is an area to which attention must surely be devoted if we are to make progress in urban development. The Commission

on Intergovernmental Relations and the Government Operations Committee have been hard at work on this for some time. S. 561, now passed by the Senate and before the House, is a significant first step. It is the product of years of study, enjoys bipartisan support, and if enacted into law may well make the provisions of S. 2977 unnecessary. I would like to comment briefly on title II of S. 2977. MBA opposed this measure last year and we continue to feel as we did then, that such a program is undesirable and unnecessary. We attach that portion of our testimony from last year for inclusion in your record, which is attachment II.

The provisions of section 208 would authorize loans to, or the purchase of securities and obligations of land development agencies, defined as public corporations, including municipalities, for the acquisition of land for future development. This land would not have to be in any metropolitan area, but the Secretary would nevertheless have to approve all plans for its use, including purchase price and sale prices.

The combination of provisions in title II would give the Secretary authority to control the use of virtually all land in metropolitan areas and any land adjacent thereto which local land development agencies could purchase. Such authority is unprecedented in our history. There is no justification for the supposition that Federal officials are better judges of the proper use of land than local officials, and there is serious danger that the creation of such authority would touch off a serious wave of land speculation.

The land development provisions of title II are wholly unnecessary and a dangerous limitation of our freedom. We urge you to vote against this title of S. 2977.

Mr. GOODWIN. Thank you for the opportunity of appearing.

Senator SPARKMAN. Thank you very much, Mr. Goodwin, and your two attachments will be included in the record. Thank you for a clear and forceful statement.

(The attachments to Mr. Goodwin's statement and a supplemental statement follow.)

ATTACHMENT I

PROPOSED AMENDMENTS

To increase maximum mortgage amount under section 203 (i)

Amend section 203 (i) of the National Housing Act by striking "$12,500" following the words "not in excess of," and inserting therein the figure "$17,500.” To authorize interest increase in multifamily programs

Amend section 207(7) (c)(3) by striking “5 per centum per annum following the words "not to exceed" in the second paragraph, and inserting in lieu thereof, "6 per centum per annum or such lower figure as the Secretary shall prescribe."

ATTACHMENT II

EXCERPTS FROM 1965 TESTIMONY OF MORTGAGE BANKERS ASSOCIATION BEFORE BANKING AND CURRENCY COMMITTEES

Land development insurance

Section 201 proposes a new program within the FHA for the insurance of loans for land development, including new towns, and assistance to State governments in the acquisition of tracts. We feel that this program is unnecessary and do not recommend its passage.