nate one member as Vice Chairman, who shall have power to act in the temporary absence or disability of the Chairman, or in the event of the death, resignation, or permanent incapacity of the Chairman, to act as Chairman pending appointment of his successor. Each member of the Board shall within fifteen days after notice of appointment make and subscribe the oath of office. Upon the expiration of their terms of office, members of the Board shall continue to serve until their successors are appointed and have qualified."

(b) The Board of Governors of the Federal Reserve System established under authority of the Federal Reserve Act as in effect prior to the effective date of the amendment made by subsection (a) of this section is abolished. Each member of the Board of Governors of the Federal Reserve System in office immediately prior to the taking effect of such amendment shall be paid one year's salary at his then current rate.

(c) On and after the effective date of the amendment made by subsection (a) of this section, any reference (other than the reference in subsection (b) of this section) to the Board of Governors of the Federal Reserve System in any law, rule, or regulation of the United States or any department or agency thereof shall be deemed a reference to the Federal Reserve Board.

AUDIT OF FEDERAL RESERVE SYSTEM BY COMPTROLLER GENERAL

SEC. 12. (a) The Comptroller General shall make, under such rules and regulations as he shall prescribe, an audit for each fiscal year of the Federal Reserve Board and the Federal Reserve banks and their branches.

(b) In making the audit required by subsection (a), representatives of the General Accounting Office shall have access to all books, accounts, financial records, reports, files, and all other papers, things, or property belonging to or in use by the entities being audited, including reports of examinations of member banks, and they shall be afforded full facilities for verifying transactions with balances or securities held by depositaries, fiscal agents, and custodians of such entities.

(c) The Comptroller General shall, at the end of six months after the end of the year, or as soon thereafter as may be practicable, make a report to the Congress on the results of the audit required by subsection (a), and he shall make any special or preliminary reports he deems desirable for the information of the Congress. A copy of each report made under this subsection shall be sent to the President of the United States, the Federal Reserve Board, and the Federal Reserve banks. In addition to other matters, the report shall include such comments and recommendations as the Comptroller General may deem advisable, including recommendations for attaining a more economical and efficient administration of the entities audited, and the report shall specifically show any program, financial transaction, or undertaking observed in the course of the audit which in the opinion of the Comptroller General has been carried on without authority of law.

(d) The Comptroller General is authorized to employ such personnel and t obtain such temporary and intermittent services as may be necessary to carry out the audit required by subsection (a), at such rates as he may determine without regard to the civil service and classification laws, and without regar to section 15 of the Act of August 2, 1946, as amended (5 U.S.C. 55a).

RECEIPTS AND EXPENDITURES OF FEDERAL RESERVE SYSTEM

SEC. 13. Section 7 of the Federal Reserve Act is amended by inserting imme diately after the section heading the following new paragraph:

"The full amount of all interest, discounts, assessments, and fees received b Federal Reserve banks shall be paid or credited by such banks to the Secretar of the Treasury and covered into the Treasury as miscellaneous receipts. Th expenses of such banks may be paid only from such funds as may be specificall authorized or appropriated for that purpose."

SEC. 14. (a) The third paragraph (12 U.S.C. 243) of section 10 of the Federa Reserve Act is amended to read:

"There are hereby authorized to be appropriated such sums as may be neces sary to pay the expenses of the Federal Reserve Board and the salaries of it members and employees. Subject to the availability of appropriations, the Boar may maintain, enlarge, or remodel its office building in the District of Columbi and shall have sole control of such building and space therein."

(b) The fourth paragraph (12 U.S.C. 244) of section 10 of the Federal Reserve Act is amended by striking the third sentence.

EFFECTIVE DATE; ACCOUNTING PERIOD

SEC. 15. Sections 13 and 14 of this Act shall take effect on the first day of the first fiscal year which begins after the date of enactment of this Act. During the period between the date of enactment of this Act and the effective date of such sections, the several Federal Reserve banks and the Federal Reserve Board shall take such steps as may be necessary to change their accounting period from the calendar year to the fiscal year and otherwise to bring their accounting practices and procedures into conformity with those employed by other agencies of the United States operated with appropriated funds.

AMENDMENT OF EMPLOYMENT ACT OF 1946

SEC. 16. Subsection (a) of section 3 of the Employment Act of 1946 (15 U.S.C. 1022(a)) is amended by adding the following new sentence at the end thereof: "Such program shall include the President's recommendations on fiscal and debt management policy and guidelines concerning monetary policy, domestic and foreign, including the growth of the money supply as defined by him."

Chairman PATMAN. This hearing will begin with the testimony of Mayor John Lindsay of New York. He and the mayors of some of our other large cities have been invited to appear because the chief executives of our cities, perhaps more than other persons in public life, are aware of the Nation's critical housing needs and the absolute necessity of meeting those needs.

I will withhold the last paragraph of my statement until I introduce Mayor Lindsay.

Now, Mr. Widnall, I believe you said you would like to make a

statement.

Mr. WIDNALL. Yes. Will the gentleman yield, please?

Chairman PATMAN. Yes.

Mr. WIDNALL. Before we hear our first witness in this series of hearings, I would like to express some thoughts about our objectives. I am greatly concerned about the problems which tight money and high interest rates have created for the housing industry and our efforts to achieve our national housing goals. I sincerely hope that we may hear from these witnesses some constructive suggestions for solutions to these problems.

In so saying, I want to make it clear that we are seeking solutionsreal solutions-not temporary expedients, although some of these may have to be given consideration if housing production drops further. However, I hope we will not fall victim to the temptations of expediency or the emotionalism generated by circumstances to waste excessive time in consideration of measures previously laid to rest.

I notice in the announcement of these hearings that they are being held "to attempt to determine ways in which new and/or alternative sources of mortgage financing can be found." It is my feeling that we need to be more imaginative than this. All through the 1960's we have engaged in one study after another regarding the mortgage market, culminating in August 1969 with the Report of the Commission on Mortgage Interest Rates. Our own actions, in passing such proposals as authority for GNMA to guarantee mortgage-backed securities, reflect our awareness of the possible sources of funds which have not been sufficiently tapped. In the final analysis, funds for mortgages

rents, and so forth, and they are not paying any taxes on it, or on the interest that they get returned, or anything? Are we doing it in part now? Isn't this a precedent for doing what you suggest?

Mr. ASHLEY. Yes; but the point is that you have in the first instance the availability of the credit and the lenders have something to say about that, as well as the borrowers. So what I am suggesting is that there are any number of nonprofit sponsors who, even if they go to a lending institution for money at 9.5 percent, will be turned away because the lending institutions would prefer to lend it to the corporation or people that the chairman has referred to.

My thought is simply that this might be worth exploring as a mechanism which will attract, in the first instance, an agreeable response from the lender.

Mr. WALSH. Congressman Ashley, could I make one point here? First of all, however, I think there would be some effect on the Treasury because it would divert some of the available supply of money from the commercial loans on which the interest was not tax exempt to the new tax-exempt loans

Mr. ASHLEY. Of course, in the absence of any kind of controls.

Mr. WALSH. I would applaud that diversion, but it would result in a certain loss of revenue.

Mr. ASHLEY. Yes; that is true.

Mr. WALSH. One thing that we have noticed in New York, which clarifies the point that the mayor and I are trying to make here, is that because of the total absence of private investment money for housing, many of the very large housing developers, who formerly were building only private housing, are coming to us now to get involved in Government-assisted housing.

I suspect, not because they have just recently seen the light or developed a social consciousness, but because this is the only game in town; the only money that is available is the Government-subsidized money of one kind or another, whether it is tax-exempt bonds, 236 interest subsidies, or whatever. We have a long line of potential developers, nonprofit and otherwise, who are willing to build at this point in history under these programs because they can't keep their organizations going any other way. Likewise, we have the sites. We have developed a pipeline of over a hundred thousand units. What we are saving is that we have and I hate to call it this-subsidized money. We have the potential in New York, at this moment, for a whole lot of reasons, of really getting a lot of developers involved in Government-assisted programs that under other circumstances would not be interested.

Mr. ASHLEY. I can only say that, while I understand your point, I don't think you have sufficiently taken into account the fact that as these loans are made for federally assisted housing at 9.5 percent, we are dramatically drying up the subsidy money that is necessary to make the programs float in the first place.

Mr. WALSH. Agreed. And you know if you can bring that 9.5 percent down, of course, you reduce the subsidy cost.

Mr. ASHLEY. Well, you simply allow the subsidy money to stretch further until you find a more subsidized unit to house more people who need it.

Mr. WALSH. No doubt about it. My solution, of course, is overly simplistic, and that is that since we have this opportunity we must be

Thank you, Mr. Chairman.

Chairman PATMAN. Mr. Barrett.

Mr. BARRETT. Mr. Chairman, the hearings which the committee begins today, of course, deal with the most critical problems confronting housing at this time. This might sound a little repetitious in some places, Mr. Chairman. However, the shortage of mortgage credit and the burden of high cost interest rates have done severe damage to the homebuilding industry and the home-buying public.

This problem has not only made it impossible to approach the level of output called for by the housing goals but has created an acute growing shortage of housing in absolute terms. The Secretary of HUD cited figures showing that over the past 3 years new housing starts have fallen short of new household formations 2.7 million. The housing shortage in itself is one of the most serious inflationary factors in the economy today and can be overcome by a monetary policy which permits an increase in housing starts.

Secretary Romney is rightly concerned with rising construction costs and is directing a major effort toward overcoming that problem. At the same time, rising interest rates present a far more serious problem, and the shortage of mortgage credit has cost the Nation nearly 1 mil lion new homes in the past year alone.

Since May 1968 construction costs have risen 15 percent while FHA and VA interest rates have soared 42 percent. In terms of a $20,000 home, this has cost the home buyer about $3,000 more in the cost of the home itself, and $12,000 in the cost of interest on a 30-year loan to finance that home.

Mr. Chairman, very few young couples realize this cost when they make this type of purchase. The total figures on cost at today's high rates are truly shocking. The purchaser of a $20,000 home will find that the overall cost of a 30-year financing will amount to $55,000 because interest alone amounts to nearly twice the cost of the house itself.

There are a number of bills pending before the committee designed to help meet our home financing needs, and we will try to find in these hearings the kind of new authority needed to overcome this problem. At that time we have very important questions on why the executive branch failed to use the authority already given it in the past Housing Act. The Housing and Urban Development Act of 1968 authorizes a promising new device to attract additional funds into the mortgage market, particularly from pension funds which have assets of over, well over $2 million but which put less than 4 cents of each of its dollars into housing. That act provided the issuance of mortgage-backed guarantee by the Government National Mortgage Association which would bring additional billions of dollars into the home market by appealing to investors who do not normally engage in direct mortgage lending.

This was the administration's proposal with broad support in the Congress, but today, 11⁄2 years later, it still has not been used.

We will also want to find out when the Department of Housing and Urban Development intends to use the $1.5 billion authorized in the 1969 act for GNMA purchases of mortgages on moderate cost FHA and VA housing. We also want to look into the possible windfalls in

volved in the nearly $3 billion of outstanding FNMA commitments which were automatically adjusted upward in price when FHA and VA interest rates were increased to 8.5 percent in December. It does not appear that any effort has been made by the Department to assure the reduction in discounts was passed on to the benefit of the seller or the buyer of the homes covered by these commitments.

Mr. Chairman, as you have directed, we are expecting to hold hearings on major housing legislation this year. Since nearly all of our programs in this field will require additional funding, we are hopeful that the administration will submit its proposals promptly so that we can begin these hearings early in this session and take needed action before the end of June.

I am finished, Mr. Chairman.

Chairman PATMAN. Mayor Lindsay, we are glad to have you, sir. Mrs. SULLIVAN. Mr. Chairman, while we are waiting for the mayor to take his seat, I would like to at this time insert for the record, and not take his time, a short statement.

Chairman PATMAN. Without objection, Mrs. Sullivan will have permission to extend her remarks in the record.

(Mrs. Sullivan's statement follows:)

STATEMENT BY HON. LEONOR K. SULLIVAN

Mr. Chairman, I think you deserve the thanks of the American people for scheduling these comprehensive hearings right at the start of this session, because no issue is more important to more families than the problem of obtaining good housing at reasonable prices. And, as all of us on this committee know, the biggest barrier to the achievement of our housing goals is the shortage the absence of mortage money at reasonable rates of interest.

Raising the mortgage interest rate higher and higher and higher gets us no additional housing; it just makes what housing there is available far more expensive, and it also raises the interest rates on everything else for which money is borrowed. The average American family pays this price over and over again; in the cost of housing, in the cost of living, in the higher local and state taxes necessary to meet the higher cost of public services arising out of the higher cost of borrowing money, and so on.

In that connection, I noticed that in the past 2 weeks New York City floated an issue of tax-free municipal bonds at an interest rate of 7.4 percent. This is a shocking example of this era of high interest rates. How much of a city's budget goes for interest on such bonds and how long can the city finance its capital needs at these high rates?

When I introduced H.R. 13694. the Home Owners Mortgage Loan Corporation bill, cosponsored by our colleague. Mr. Barrett, the chairman of the Housing Subcommittee, we thought the home mortgage interest rate situation had already reached disastrous proportions. That was only last September-less than 5 months ago. Yet today it is infinitely worse. Now Government-insured or guaranteed mortgages under FHA or the VA are bringing 81⁄2 percent, plus about five points. This is tragic and absurd.

The private money market has showed that it has no sentimental interestor any other kind of interest-in holding down or bringing down rates for mortgages for moderate income families. That means that Government must act to bring them down. And this bill will do it, by extending loans at 6% percent or less to families with incomes up to $12,000 for mortgages up to $24,000.

What is needed now is not only government-insurance of mortgages, such as we have under FHA and the VA, but also government yardsticking on what a fair rate of return should be. The HOMLC would operate only when the private money market cannot supply mortgages at reasonable rates for moderate income families. And that time is right now.

Chairman PATMAN. Now, Mayor Lindsay, before you came in we were having some statements. I made a statement and Mr. Widnall, the