The subcommittee met at 10 a.m., in room 5302, New Senate Office Building, Senator John J. Sparkman presiding.

Present: Senators Sparkman, Douglas, Proxmire, and Bennett.
Senator SPARK MAN. Let the committee come to order, please.

Several other members have indicated they will be here but we have a heavy schedule this morning, so I think we better get started and not wait any longer.

We are continuing the housing hearings today, the third day, but before calling the first witness, I should like to repeat a brief announcement which I made yesterday to the effect that we added three bills as the subject matter of the hearings.

I announced in the beginning of these hearings that any bills referred to this subcommittee in the course of the hearings would be included. There are three bills pertaining to mortgage-market measures, S. 644, S 1202, and S. 1549.

These bills are somewhat similar in nature and were referred to our subcommittee and will be included in the hearings. I realize that some of the witnesses appearing today may wish to present testimony on these bills.

Since the announcement was made only yesterday that these bills would be added, we would be happy to have written statements for the record if any of today's witnesses wish to furnish them at a later date.

I assume the witnesses today, those that are concerned primarily with this part of the housing activity, may be familiar with the bills and may want to testify on them. But if witnesses wish to supplement their statements, or give us their statements in writing, we would be glad to have them.

Our first witness today is an old friend of our hearings and our committee, Mr. Ehney A. Camp, of Birmingham, Ala.

Mr. Camp, come around, if you will. For the benefit of the record, identify the gentleman who is with you, please. We are glad to have you with us again. I believe you have been with us each year for a good many years. We are always glad to have you. You have been quite helpful.

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STATEMENT OF EHNEY A. CAMP, JR., EXECUTIVE VICE PRESIDENT, LIBERTY NATIONAL LIFE INSURANCE CO., BIRMINGHAM, ALA., ON BEHALF OF THE AMERICAN LIFE CONVENTION AND THE LIFE INSURANCE ASSOCIATION OF AMERICA; ACCOMPANIED BY PROCTOR H. BARNETT, SENIOR VICE PRESIDENT, PRUDENTIAL INSURANCE CO. OF AMERICA; AND DR. JAMES J. O'LEARY, VICE PRESIDENT AND DIRECTOR OF ECONOMIC RESEARCH, LIFE INSURANCE ASSOCIATION OF AMERICA

Mr. CAMP. Thank you very much, Senator.

Before getting into my statement, and identifying my associate here, I would like to say it is always a pleasure for me to appear before this committee of which you are chairman.

I have said before, it gives me a great deal of pride to notice and realize and appreciate the fine part you have played in this whole field of housing and mortgage lending.

As one of your constituents, I want to thank you for the time that you have devoted to this whole area. On the secondary market bills you referred to, we did not include anything in our statement about it, but it is something in which we are so vitally concerned, if you would permit me at the end of this statement, I would like to make a few extemporaneous remarks and then ask for the privilege of filing

a statement on it.

Senator SPARKMAN. That will be fine.

Mr. CAMP. I am Ehney A. Camp., Jr., executive vice president, Liberty National Life Insurance Co., Birmingham, Ala.

My associate is Proctor H. Barnett, senior vice president, the Prudential Insurance Co. of America, Newark, N.J. We are testifying in behalf of the American Life Convention and the Life Insurance Association of America, two associations of life insurance companies with a combined membership of 327 U.S. legal reserve companies which hold 97 percent of the assets of all U.S. companies.

Mr. Barnett is in charge of mortgage loans in his company. He is also a member of the Joint ALC-LIAA Committee on Housing and Mortgage Lending which I serve as chairman.

The life insurance companies have a large investment in home mortgages and in community development and are very much interested in the legislation being considered by your committee.

One measure of this interest is the fact that during the period 194664 the life insurance companies in this country made a total of $57.9 billion of residential mortgage loans on one- to four-family properties. Of this total, $19 billion were FHA insured; $13 billion were VA guaranteed, and $26 billion were convention.

Assuming that the average mortgage loan was $10,000, the life insurance companies have aided approximately 5,790,000 families to become homeowners since 1945. During the period 1946-64 life insurance companies made $11.4 billion of residential mortgage loans on multifamily properties. Of this total, $1.6 billion were FHA insured and $9.8 billion conventional.

At the end of 1964 the life insurance companies held $28.7 billion of one- to four-family residential mortgages, of which $10 billion were

FHA insured, $6.4 billion VA guaranteed, and $12 billion conventional. In addition, they held a total of $6.1 billion of mortgages on multifamily residential properties, of which $1.3 billion were FHA and $4.8 billion conventional.

The life insurance companies attach a high priority to residential financing, which contributes to improved living for the American people and furnishes a desirable investment for policyholders' funds. We shall continue to be interested in home financing so long as residential mortgage loans may be made in free markets at competitive interest rates. Life companies have a responsibility to their policyholders to seek the highest rate of return available in the marketplace on sound investments; for the higher the investment return of the companies, the lower the cost of insurance to policyholders.

Before discussing some of the sections of the Housing and Urban Development Act of 1965, I would like to make a few general observations which will help to clarify our position regarding certain parts of the bill.

First, we in the life insurance business appreciate the great contribution which the FHA insurance system has made to broaden the private home mortgage market and to facilitate home ownership in this country. The heart of the FHA program has been-and continues to be-title II. Through Government insurance of the risks inherent in home mortgages, and uniform standards of eligibility for mortgage insurance, the FHA system has made possible a standard mortgage instrument which can be sold in a nationwide market. Behind FHA's willingness to insure has been the expectation that the loan would be economically sound, that the borrower would have sufficient resources to meet his obligation and that the property would be adequate to secure the loan.

Inherent in the FHA system was the expectation that private investors would make FHA loans at market interest rates. But, more and more in recent years there has been a departure from the basic FHA concept into the insurance of special purpose loans including those to aid low-income families, to aid the elderly, to stimulate cooperative housing, and to facilitate urban renewal.

These special purposes, in themselves understandable from a social viewpoint, depart from the basic objective of FHA which is, by means of Government insurance, to encourage private lenders to make carefully underwritten and economically sound home mortgage loans.

A typical pattern in the special purpose programs has been to provide FHA insurance for loans at interest rates well below the going market rate, with FNMA being empowered to purchase such mortgages if private investors are unwilling to make the loans at submarket interest rates.

Second, in considerating the legislation which is before your committee, it will be helpful to appraise how well the private home mortgage market is functioning. One measure of this is the availability of home mortgage credit.

Table 1 presents a picture of the sources and uses of loanable funds during the period 1948-64.

TABLE 1.-Sources and uses of funds in the United States capital market, 1948-641

TABLE 2.-Net increase in mortgage debt on 1- to 4-family properties, classified by Government-Underwritten and conventional, 1948-64

Mr. CAMP. As may be seen in the lower portion of the table, the amount of outstanding mortgages on 1- to 4-family residential properties increased by $15.9 billion in 1964, and the total of "other mortgages," a substantial part of which was on multifamily residential properties, increased by $13.8 billion. The amount of increase on onefourth family properties alone was nearly 21⁄2 times the net increase of $6.6 billion in outstanding corporate bonds.

Going back to 1948, the net increase of $5.1 billion in outstanding one-fourth family mortgages was just a little higher than the $4.7 billion increase in corporate bonds. As shown in the table, since the war residential mortgages have claimed a larger and larger proportion of long-term capital funds.

The record shows that in terms of availability of financing the private mortgage market has served the housing needs of our people very well. The private mortgage market is intensely competitive and it covers every community in the country.

With these general observations as background, I would now like to give you our views on some of the sections of the Housing and Urban Development Act of 1965.

Title II, section 201 (a) and (b): FHA mortgage insurance for land development.-We have serious reservations about this proposed program of FHA insurance for land acquisition and development. First, we cannot see any need for FHA insurance to encourage the financing of land acquisition and development. We believe that there is adequate financing available on an uninsured basis today to meet the needs. Private lending institutions are more than ready to satisfy any sound requests for such financing.

The objective of the program in section 201-better land use and community planning-is certainly laudable, but we have grave doubts about whether the program contemplated would accomplish it. There is too much danger that insured loans for the purchase of land on the scale indicated here would lead to speculation and sharply rising land prices.