yield on the 81/2 percent mortgage and one for 8 percent. Of course, this made the discounts almost prohibitive because it required the seller to give up most of his equity. So no one gains by devotion to an archaic principle of holding interest rates down below market levels. We strongly urge the committee to approve legislation exempting the FHA and VA mortgages from the application of State usury laws. It is one thing to insist on lower interest rates; it is another to hold interest rates down so that the commerce in housing is at a standstill. For the same reason we recommend that the committee approve legislation to free the FHA and VA rates from any administrative or statutory ceilings.

In conclusion, we applaud the chairman for providing us and others in government and industry a forum in which we are able to present our recommendations for alleviating a crisis in homebuilding and home financing that is without precedent. We pledge the cooperation of our association in working toward a meaningful solution to this problem. Thank you.

(The prepared statement of Mr. Landt follows:)

PREPARED STATEMENT OF CHARLES P. LANDT, OF RALEIGH, N.C., CHAIRMAN, SUBCOMMITTEE ON MORTGAGE FINANCE, REALTORS' WASHINGTON COMMITTEE OF THE NATIONAL ASSOCIATION OF REAL ESTATE Boards

Mr. Chairman and members of the committee, I appreciate this opportunity to testify before the committee on behalf of the National Association of Real Estate Boards. Our association consists of approximately 91,600 Realtors who are members of more than 1,570 local boards of realtors. Realtors are engaged primarily in the business of brokerage, appraising, and management of all types of residential, commercial, industrial, and farm real estate. The interests and activity of these members extend to all real estate-related fields including mortgage banking and home building.

The committee is familiar with the sharp decline in homebuilding and the widening gap between necessary additions to the housing inventory and our national housing goals.

The existing house market has suffered a simultaneous decline with more and more homeowners foregoing the upgrading process because of mortgage money scarcity and unprecedented high interest rates.

The Chairman's recent statement that half of America's families are unable to acquire housing without some direct or indirect Federal subsidy reflects an intolerable situation that this nation can ill afford. Obviously, this nation cannot afford to subsidize the shelter costs of more than a fraction of even the 13 million families who are considered to be of low income. We now have four major housing subsidy programs, public housing, rent supplements, and sections 235 and 236, and even these under the most optimum budget conditions can only whittle away at the problem we face in providing adequate shelter for our expanding population.

We believe that the major shortcomings in our national housing effort for the past two decades has been our preoccupation with short-range solutions which touched on the symptoms of our difficulties. This was tantamount to an almost total disregard of the more fundamental reasons why our highly technologically advanced society cannot produce systems of home financing without crisis which come with alarming frequency.

Before proceeding with specific recommendations, I want to express our position generally that long-term investment of savings a necessary ingredient of home financing-will not serve the nation's needs unless there is confidence in the future value of the dollar. Inflation, and more serious, the expectation of or a national resignation to inflation, generates pressures on the capital market by borowers less sensitive to soaring interest rates than the homeowner. This, in the final analysis, makes the homeowner the last in line to tap the nation's financial resources.

It must be apparent to all that we are now reaping the harvest sown by our failure to discipline ourselves beginning in 1965 when we decided that the Vietnam war could be financed with little if any impact on the economy.

The November 1969 Convention of the National Association of Real Estate Boards approved an eight-point program which is attached to this statement. I shall comment briefly on some of the recommendations which are directed at long-range solutions to the problems of the residential mortgage market.

Probably the most important in terms of its long-range benefit is the creation of a secondary market for conventional loans in the Federal National Mortgage Association. Our organization has advocated this for many years, contending that we must take steps to make the conventional mortgage a nationally marketable commodity. Once FNMA obtains this authority, it will be necessary to develop national standards relating to appraisals as well as the mortgage instrument itself. Thus a conventional secondary market in FNMA would act as a catalyst for the necessary changes in state laws to rid the conventional mortgage of the legal regidities and impediments which make its marketability across state lines almost impossible at the present time. We understand suggestions have been advanced to create a secondary market for conventional loans within the framework of the Federal Home Loan Bank System and that such a proposal was included in the 1968 version of housing legislation as approved by this committee. We see no reason why both FNMA and the Federal Home Loan Bank Board could not operate secondary markets for conventional loans. We are heartened by reports that the Department of Housing and Urban Development has withdrawn its past objections to such a proposal, and we note references to the advantages of such a secondary market in the recently published Annual Report of the President's Council of Economic Advisers. We strongly urge that this committee initiate such a proposal for a conventional secondary market in housing legislation which will be considered later in the session.

Another long-term benefit would flow from the issuance by FNMA and other mortgage originators of a marketable security, against pools of FHA and VA mortgages along with conventional mortagages, such obligations to be guaranteed by GNMA. The Housing Act of 1968 authorized such guarantees, although to date, ostensibly because of market conditions, it has been exercised only to the extent of approving a so-called pass-through security.

A major ill that plagues the mortgage market stems from the nature of the instrument itself. The mortgage by its very nature does not commend itself to the managers of pension funds. We believe that the highest priority should be given to the creation of an acceptable and saleable instrument which will enable the mortgage market to tap new sources of money for the home buying public. Our association is aware of H.R. 15402, introduced by the Chairman, which would require that private pension funds invest a portion of their assets, to be predetermined annually by the Secretary of the Treasury and the Secretary of Housing and Urban Development, as a condition for retaining their present tax exemption of earnings on their investments. Our association is making a study of this legislation and while we are not ready at this time to make a specific recommendation, we believe that some method should be devised that would tap this fast growing reservoir of investment funds to help meet our nation's housing goals. I repeat that our association is not ready to make a specific recommendation on this point but we believe in the tapping of these funds for this purpose. A third high priority objective should be the requirement that Federal agency obligations bear a high enough minimum denomination to minimize competition with mortgage-oriented thrift institutions. The saver is becoming more sophisticated he reads the financial sections of our major newspapers. He can tell the difference between investing $1,000 in a government obligation yielding 71⁄2 percent or 8 percent and the 5 percent interest on passbook deposits in a savings and loan association, even though he may not be aware of the disadvantages of some agency obligation in terms of liquidity, negotiability, and the absence of any insurance features. We believe that agency obligations should bear a minimum denomination of $25,000, to avoid the disastrous disintermediation which is plaguing our thrift institutions.

Our association also supports pending legislation which would exempt from Federal income taxation a portion of the savings invested in savings and loan associations and mutual savings banks. While we appreciate that this is tax

legislation which is the exclusive domain of the tax-writing committees of the Congress, we hope that the Banking and Currency Committee will make every effort to persuade the House Ways and Means Committee to expedite consideration of the several bills which have been introduced in the House on this subject. While we deplore high interest rates, we nevertheless believe that rigid interest rates combined with unrealistic state usury laws are self-defeating. For example, consider the case of Ohio. The Ohio Legislature recently turned down in committee a bill to increase the state usury limit from its present 8 percent. The defeat of this legislation was inspired by an announcement of the Federal National Mortgage Association that it would purchase 8 percent FHA and VA mortgages provided the discounts were sufficient to bridge the gap between the yield on an 81⁄2 percent mortgage and one for 8 percent. Of course, this made the discounts almost prohibitive because it required the seller to give up a substantial portion of his equity to help the borrower obtain financing. The results are self-evident. The seller naturally objects and the house is not sold. Who then gains by such devotion to an archaic principle of holding interest rates down below market levels?

We strongly urge the committee to approve legislation exempting the FHA and VA mortgage from the application of state usury laws. It is one thing to insist on lower interest rates; it is another to hold interest rates down so that commerce in housing is at a standstill. For the same reason we recommend that the committee approve legislation to free the FHA and VA rates from any administrative or statutory ceilings.

In conclusion, we applaud the Chairman for providing us and others in government and industry a forum in which we are able to present our recommendations for alleviating a crisis in home building and home financing that is without precedent. We pledge the cooperation of our association in working toward a meaningful solution to this problem.

STATEMENT OF POLICY ADOPTED BY THE DELEGATE BODY OF THE NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, NOVEMBER 13, 1969 MORTGAGE MARKET

The present limited availability and excessive cost of mortgage money is but one in a series of crises which underscores the grave defects in the structure of the mortgage market. Housing construction starts are declining at an alarming rate and housing goals are receding from view. The nation faces a housing shortage of grave proportions unless the Congress takes immediate action to neutralize the disproportionate burden shouldered by housing in the administration of fiscal and monetary policies as follows:

1. Direct the Treasury to lend funds to the Federal Home Loan Bank Board sufficient to assure availability of an adequate supply of residential mortgage

money;

2. Exempt FHA and VA loans from the application of any state usury laws; 3. Free the interest rates on FHA-insured and VA-guaranteed mortgages ; 4. Authorize FNMA to deal in conventional mortgage loans;

5. Direct HUD and GNMA to carry out immediately the mandate of the Congress by guaranteeing marketable securities issued by FNMA or other originators against pools of mortgages thereby moving from the present policy of guaranteeing only pass-through securities which have a limited effect on attracting new money into residential mortgages;

6. Authorize use of a portion of the National Service Life Insurance Fund to be made available to purchase VA-guaranteed mortgages;

7. Exempt from federal income taxation a portion of the interest paid to depositors in mortgage-oriented thrift institutions;

8. Increase the minimum denominations of government agency bonds to minimize depositor withdrawal of funds from mortgage-oriented thrift institutions. Mrs. SULLIVAN. Thank you, Mr. Landt.

And now, Mr. Swire, you may proceed.

STATEMENT OF JOSEPH SWIRE, DIRECTOR, COLLECTIVE
BARGAINING, IUE-AFL-CIO-CLC

Mr. SWIRE. Madam Chairman, my approach to the problem is slightly different. I have been negotiating pensions for the IUE for some other unions since 1950, as you folks know, the expansion of funds in pension plans began actually with the right of the unions to negotiate with the companies with regard to these problems. The amount of assets in pension funds back in 1950 was comparatively small. By 1957, they were about $19 million. At the end of 1968 we had about $80 billion in pension funds. Not in securities. There were corporate pension funds.

Now, I have been interested for some years in the entire picture of the amount of moneys available and how they are being used. What I would like to do is to estimate the assets, total assets not only of pension funds because pension funds are not the only sources available here. We have State and county pension plans that I think might be considered as part of the picture and we also have at the present time assets of around $188 billion in insurance reserves that are long-term reserves. We think in terms of using pension assets only with regard to the possibility of housing. I think you have to include the State and county pension plans. I think you have to include also the amount of money involved in long-term insurance reserves.

Now, I estimate that about $314 billion is available today in this total picture, maybe availability. Some years ago back in 1965 I was asked to talk on the future of pension and health programs before the Western Pension Conference. I made an estimate of what would happen by 1975 and 1980 with regard to the value of these funds.

Now, at that time the increases annually in pension assets, insurance assets, were not as rapid as they have been in the last year. In the last year the increase, I say 1965 over 1969, the increase in pension plan corporate assets amounted to about $15 billion. The increase in the State-county local pension plans amounted to about $4 billion, and the increase in the insurance reserves about $11 billion.

I think what we have to do is look ahead a few years. And what I did was to assume the economy would not slow down, assume that the same dollar amount of money would be there every year and assumed interest at a conservative rate of 5 percent. By 1975 we would have on that basis approximately for the pension plans a loan, not including the insurance reserves, about $485 billion or close to half a trillion dollars. By 1980, if we threw in the insurance reserves and the pension reserves, we would have a total of about $964 billion or close to a trillion dollars in these funds.

Now, these figures may not be entirely accurate. We don't know what is going to happen to the economy. If we slow down, you won't have the same amount of dollar increase each year. It is quite possible that a few years from now we won't be earning 5 percent interest. I think my friends will disagree with that. I think it is a good rate. But as a theoretical matter, what is going to happen to the money that is available in pension funds and in insurance reserves is known. Now, at the present time there is no particular practical method of investing these bonds that involves anything except good investment.

I mean the bankers and the insurance people are they doing the best job they possibly can? I assume there are about 10 to 15 banks and 10 to 15 insurance companies that control most of these assets and will control most of these assets. I have talked to a number of people and I have never been able to find out whether or not there is any other factors in the investment.

Now, I think it is a pretty dangerous situation for this economy and for this country, you have tremendous sums of money which may amount to $1 trillion in 10 years, in the next decade when there is no planned method of investing except the basic way you think of to do it, which may result in having large portions of these funds go in order to up the price of common stock or in some other phase of the economy.

My feeling has been for some years that this problem is not a separate problem. This problem does require a good deal of thinking, and I felt for some time that what we ought to have is a-may I read this? My recommendation would be that we have an advisory body to the government or to a specific government department which includes the top economics in the country, government, business, university, labor, agriculture, and also groups with social outlooks, such as church and consumer groups. The function would be to analyze the economy and to make recommendations as to the areas which require stimulation for the good and welfare of the Nation and the amount of money required to provide such stimulation.

It is for this reason that I am particularly interested in the legislation that is being proposed here. This is the first legislative attempt I have seen to tap some of the money in these funds for what is obviously a socially approval objective for the good of the American people. This is a solid step, in the right direction.

My main point is there I think at some point or other we in this country have to plan constructively the use of such sums of money or we may complicate the problems that will develop in the coming decade. There is no criticism at all. The fact is that tremendous sums like this have to be planned adequately. And I think that the use of a portion of that money for social good in the form of housing is very important.

Now, there are two other statements I would like to make. One is that housing industry means an awful lot to the American economy. When the housing industry goes down for whatever reason there is, we don't sell as many TV's in our various factories all over America. We don't sell as many electrical appliances. We don't sell as many factional horsepower motors and the demand for power goes down. We don't sell as many turbines. And there is not as many automobiles sold in America, and there is not as many rubber soles and there is not as much tile being produced. The result is when housing goes down there is a tremendous impact on the entire mass production segment. I estimate that about 15 to 20 million people are involved and housing is a tremendous factor in the prosperity of the housing industry, as a tremendous factor with regard to the prosperity of the mass production industry and the rest of the economy in America.

Now, one of the problems we have at the present time is the entire question of housing costs. You folks know that we just com