mitted by the private sector. Such a program has distinct advantages over direct federal loans or loans made at submarket interest rates.

The proposed measure authorizes 20 per cent of the available contract funds to be used for deeper subsidies than are currently permitted. All of the interest, and some of the principal and other ownership expenses might be covered under this proposal. This permit lower income groups to qualify for home ownership than now, a desirable objective.

Any formula for housing assistance must be somewhat arbitrary and will probably be subject to questions of fairness and feasibility. The new approach in this bill of establishing eligibility on the basis of median income in a housing market area will undoubtedly be criticized by some. An arbitrary cut off point may well make it difficult for a family with slightly more than median income to obtain adequate housing even though it is unable to afford unsubsidized housing. On the other hand, some will contend that making up to one-half of American families eligible for housing subsidies, as this bill does, is going too far in the other direction. This points up the continual need for a major breakthrough against ever-rising costs of housing in this country.

All things considered, we see no objection to the formula authorizing the bulk of subsidy funds (80%) to be used for families whose income is no more than 80 per cent of the median for the area. This leaves only 20 per cent of available funds for those incomes are higher, but not above the median.

We do not understand, however, why only 15 per cent of the funds authorized for subsidies may be used for existing housing. This is considerably less than is currently permitted. We recognize the objective in this provision of stimulating new construction, but this could be counterproductive. Subsidized home owners should not be limited almost entirely to new housing, when adequate existing housing facilities are available, and often at lower cost than new construction. In many housing market areas, for example, scarce land, generally available only at very high cost, precludes the construction of suitable housing for low- and moderate-income families. At the same time, existing housing in inner city areas can often be rehabilitated economically for occupancy by families eligible for federal assistance.

Subsidized housing dollars may well be used more effectively, therefore, and more families accommodated if more existing housing were utilized. We recommend, therefore, that a greater percentage of funds—perhaps up to 50 percent-be allocated for existing structures than S. 3639 provides.

PROJECT MORTGAGE INSURANCE

In structure and approach the multifamily mortgage insurance programs largely parallel the home mortgage insurance programs. Consolidation is achieved by incorporating all non-subsidized mortgages into one program with uniform criteria. The same is true for all subsidized multifamily mortgage programs, which are consolidated into one program based on section 236 of the National Housing Act. As noted previously, we support this structure and approach and trust that effective implementation, through sound and flexible administrative procedures, will make the programs more widely acceptable by all segments of the private sector.

OTHER PROVISIONS OF THE BILL

S. 3639 contains two other provisions of which we approve, relating to FNMA and GNMA, but these have already been included in legislation passed by the Congress. One provision provides authority for FNMA to deal in conventional mortgages; the other transfers $1.5 billion from a limited GNMA special assistance fund to a broader GNMA mortgage purchase program under Presidential authority, and also removes maximum amounts on mortgages which GNMA may purchase under its special assistance functions. We assume it is no longer necessary to include these provisions in S. 3639.

Mr. Chairman, this concludes our statement on S. 3639. We appreciate this opportunity to appear before your Committee to express the position of our National Association on this important legislation.

The CHAIRMAN. Mr. Charles W. Robertson, chairman of the Mortgage Finance Committee of the American Bankers Association. Come around, Mr. Robertson. We are glad to have you, sir. We will be glad to hear from you.

STATEMENT OF CHARLES W. ROBERTSON, CHAIRMAN, MORTGAGE FINANCE COMMITTEE, AMERICAN BANKERS ASSOCIATION; ACCOMPANIED BY CHARLES T. O'NEILL, ASSOCIATE GENERAL COUNSEL, AND ROGER HAWKINS, DEPUTY MANAGER

Mr. ROBERTSON. Thank you.

The CHAIRMAN. For the benefit of the record, will you identify the two gentlemen who are with you?

Mr. ROBERTSON. Yes.

Mr. Chairman, I am Charles W. Robertson, vice president of the Indiana National Bank of Indianapolis. And I am accompanied this morning by Mr. Charles O'Neill, associate general counsel of the American Bankers Association, and Mr. Roger Hawkins, staff director of the Mortgage Finance Committee of the American Bankers Association.

The CHAIRMAN. We are glad to have you.

Mr. ROBERTSON. We appreciate this opportunity to appear before this committee to present the American Bankers Association views on Senate bill 3639.

It is appropriate to point out that as one of the largest residential mortgage lenders, we are vitally interested in any action that will increase the ability of homebuilders to provide, and home buyers to purchase, adequate housing in the years ahead.

The ABA in the spring made a special appeal to every member bank to increase its holdings of residential mortgages. We are already beginning to see some statistical evidence of increased expectations of mortgage lending as a result of this appeal. Recent ABA survey data show that residential commitments are up sharply, from a level of $12.5 billion in 1969 to $15.4 billion in 1970-a 23.7 percent increase. Since commitments are one of the principal determinants of disbursements, there is no doubt that future commercial bank residential lending will show a marked increase. The same survey showed that estimated disbursements for 1970 will be approximately $17.5 billion. Although this is down slightly from $18.5 billion in 1969, we feel certain that 1970 activity should result in a $4 billion or more increase in net holdings of final mortgages by commercial banks. A table and explanatory notes in the ABA home financing survey are attached as an appendix to my statement.

Commercial banks have a larger stake in the total home financing area than any other financial group. In 1969 commercial bank disbursements to finance residential dwellings were estimated to be $18.5 billion. If we add to this the gross flows of funds to purchase housing agency securities; to finance building material manufacturers and suppliers; to finance sewer, water, street and other supporting facilities of municipalities; advances to land developers and builders; and loans to other financial institutions supplying mortgages credit, there is no doubt that the total far exceeds the gross flow activity of any other lender.

Turning now to the legislation before this subcommittee, we believe S. 3639 will help all financial institutions provide the funds that will be needed to meet the Nation's housing goal. This is a bill designed to increase the availability of decent housing and to "consoliate, extend, and improve laws relating to housing and urban re

newal and development." The provisions in that bill will, if enacted. greatly reduce many of the encumbrances and restrictions now inhibiting financial institutions in financing housing and urban renewal. Generally speaking, we believe the administration's bili is a constructive measure and is a reasonable complement to the emergency housing bill recently reported by this committee. The administration's bill is so all encompassing, however, that we will not attempt to cover all of its provisions, but only those which we see to be of particular interest.

The CHAIRMAN. Mr. Robertson, you are aware of the fact that the emergency housing bill you refer to passed out of this committee last April, passed the Senate in April, was recently passed by the House, and on Friday the President signed it into law.

Mr. ROBERTSON. Right. Very good.

Under title I of the bill, simplification and consolidation would include the following: All loans would be insured under the Mortgage Credit Assistance Act, rather than under the National Housing Act as in the past, and in the process the number of existing programs would be reduced from 50 to eight. The American Bankers Association applauds this move toward simplification and consolidation in the expectation that it will eliminate obsolete and overlapping programs. These programs have been too complicated and self-defeating, resulting in a loss of interest on the part of lenders who do not have the time or adequate staff to ferret out details.

The CHAIRMAN. Mr. Robertson, let me stop you right there.

You refer to the change in the title of the organization which is to handle mortgages and so forth, the Mortgage Credit Assistance Act, rather than under the National Housing Act. It has been called to our attention by several that this raises problems because many of the States have enacted laws which are geared to the National Housing Act and would cause a great deal of trouble if we do not continue the same term, at least making it legal for them to make the contracts in the name of the National Housing Act. Do you have any comment on that?

Mr. ROBERTSON. I think there probably would be a few problems. However, I think that you would find that many of the States in their effort to more or less copy the National Housing Act and then the Credit Assistance Act, would make a change along with the Federal

program.

The CHAIRMAN. I just wanted to ask you.

Mr. ROBERTSON. I think it is just a matter of changing over. And I think there are quite a few advantages to this that the States would appreciate.

Mr. O'NEILL. Well, I think that some feel it might be a lag in time. before the States could change their laws. And this is something that would possibly have to be adjusted.

The CHAIRMAN. It is, I think, true some States only have legislation every 4 years. I suppose most of them have it every 2 years. But I think some of them still have them every 4 years. I am not sure of that.

But anyhow, it has been suggested it could necessitate a special session of the legislatures. And some of the others have objected to it on

48-279 0-70-pt. 2-20

the ground that it does create problems. I just thought I would ask you about it.

Now, there is one other thing I want to ask you about. You refer back in the very beginning of your statement to the fact that you sent out a letter urging the commercial banks to increase their holdings of residential mortgages. There is a limitation on the amount of mortgages that commercial banks can carry in their portfolios, is there not?

Mr. ROBERTSON. Yes.

The CHAIRMAN. What is that?

Mr. ROBERTSON. Seventy percent of the time.

The CHAIRMAN. Seventy percent of the time deposits?

Mr. ROBERTSON. Right, and saving.

Mr. O'NEILL. Or 100 percent of capital and surplus.

The CHAIRMAN. Now, let me get that straight. Seventy percent of time.

Mr. O'NEILL. They have an alternative between the two. Seventy percent of time and savings deposits or capital and surplus, whichever is the largest. This is national banks, sir.

The CHAIRMAN. Yes, I realize that. I remember when we passed that act several years ago increasing the percentage. But I did not recall offhand how that percentage was measured.

Well, thank you.

Mr. ROBERTSON. What we were asking them to do, Senator, in this letter was to take funds from other types of lending and put them in the residential mortgages.

The CHAIRMAN. Yes, I realize that. You bring that out where you are talking about the probable amount that the total will come to. In other words, through all of the different ways that housing could be held through commercial banks.

Mr. ROBERTSON. That is right. We were interested in seeing the banks take funds from other loans and put it into residential housing because we thought it was much needed.

The CHAIRMAN. Yes.

All right, sir.

Mr. ROBERTSON. Another provision in the bill would authorize HUD to insure "advances" of mortgage funds to cover cost of materials and building components for housing that are located offsite but which will ultimately become part of the mortgaged property. The American Bankers Association recommends passage of this provision because it will facilitate financing of prefabricated plant-assembled construction materials. Factory-built housing is a real necessity if we are going to provide adequate housing for low-income families. However, the financing of offsite components will have to be carefully supervised and regulated because it will involve problems more charac teristic of consumer or business loans, rather than those of home financing. Adequate supervision may prove to be expensive for both lenders and the FHA.

The Secretary of HUD would be granted permanent authority to establish maximum interest rates on FHA insured mortgages and to experiment with free interest rates when no discounts or "points" are charged. The ABA prefers the recommendation of the Commission on Mortgage Interest Rates for a dual market system which was in

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Senator PERCY. Mr. Chairman.

The CHAIRMAN. Senator Percy.

Senator PERCY. Regrettably, I must be on the floor for the mom at 10 minutes of 12. I would like to break in at this point took a tow questions, if I may, before I have to go.

The CHAIRMAN. Go right ahead.