Mr. SWIRE. IBEW does have a pension fund and they are loaning it out to a number of people, you see. The IUE pension fund applies only to our staff. By and large, I think that a large number of pension funds would be doing well, would do better than they are doing now, not all of them, if they averaged 6 percent at the present time. Now, the insured funds are doing better than that, see. But your noninsured plans, I would assume many of them average less than 5 percent. Now, some are doing better. Mrs. SULLIVAN. Well, I frankly have no personal knowledge of what return they get on these funds, but as you say, they are growing by leaps and bounds. And I believe your idea of having some sort of a plan for this is certainly worth investigation and consideration by the Congress. The funds are so numerous and are growing so fast that some kind of planned action should be taken. I just heard of one proposal down in Panama, by one union, which is going to build some 1,800 units of housing. This housing is to be offered to their own members to buy, because no one is doing any building down there. Of course, I think it is clever of them to do it, because it is going to encourage the worker to join this particular union instead of another, with the idea of buying a house for himself that he can't buy in any other way. Whether or not it is good to use the funds of a pension plan for their own particular workers may be something else to consider. be Thank you. Mr. Brown. Mr. BROWN. Thank you, Madam Chairman. If I may continue that line of questioning, Mr. Swire, what would your attitude, or the attitude of your pension fund if a mortgagebacked security guaranteed by the Government were available for investment? Mr. SWIRE. I think it would be excellent. Let me say this, in Canada we have a small pension fund in a number of small companies and they have pooled arrangements, some of the banks there. Canada Trust Co. has got an arrangement whereby they have mortgaged a number of houses, the same as you have a commingled fund here in this country. and it is very successful. They are earning over 10.1 percent interest, which I think is too high. Mr. BROWN. Now, let me move away from that one step and ask you if the nature of the instrument, the problems of the different legalities, both of substance and form, of the mortgage instrument among the States, discourage you from investing directly in mortgages? Mr. SWIRE. I am not an investment man. What I do is negotiate with large corporations mostly, and I don't know enough of the details of that form to answer at all. Mr. BROWN. But this has been mentioned by practically every witness from the industry. They have said that the nature of the instrument and the different legal rights that accrue to a holder, that these things are part of the impediments to the involvement in the mortgage market today, and I was wondering if this is true. Mr. SWIRE. I just can't answer that. Mr. LANDT. Madam Chairman, may I answer that? Mr. BROWN. I would be pleased to have Mr. Landt respond. Mr. LANDT. I am a director of an organization that was organized 12 years, 13 years ago called the Investors Central Management Corp., headquartered in New York and set up for the express purpose of breaking the pension funds in order to get money for FHA and VA mortgages. And we went along fine and just started doing great and we had a lot of them sold on it, and the bad days of 1965 and 1966 came along, and they stopped buying. They kept buying mortgages, but they liked to buy a million dollar mortgage. They don't want to have to fool with all these little pieces of paper. And they could also get higher yields on the big loans. I don't know whether that answers your question, but an organization is in existence today, and it is catering to what the fund was, which is not FHA and VA loans. Mr. BROWN. One further question and that is that many of the witnesses who have testified before the committee have also supported the concept of noninterest, or nontaxable interest income. Apparently this is on the basis that this provides an incentive to invest in this area and to get interest income as distinguished from gain from investment in securities. Here again we are talking about one mass of financial resources which presently is improperly directed into the commercial and industrial area rather than the housing area. In order to redirect the use of these resources, what would be your comment about limiting the deductibility of interest to a certain rate? In other words, few today are paying 10 or 12 percent for housing money, are they? The individual certainly isn't. Mr. LANDT. Well, if I may answer that first, I would not like that idea speaking for the National Association of Real Estate Boards because deductibility of interest is a good sales point in selling a house. Mr. BROWN. But I am not suggesting a repeal of interest deductibility. I am suggesting that one could not deduct interest in excess of, say 7 percent of one's outstanding indebtedness. Mr. SWIRE. You have certain mortgages a lot more than that, a lot more than 10 percent, too. Mr. BROWN. Oh, yes. Mr. LANDT. I would rather see it the way the bill proposes. Mr. BROWN. Of course, when you provide tax reduction incentives what you are doing is jeopardizing your fiscal situation in Government because you are taking away revenues. The way I suggest would result in increasing revenue. Under a proposal permitting deduction of an amount of interest income from taxable income, you would lessen available resources to Government. Mr. LANDT. That is true. Mr. BROWN. No other questions, Madam Chairman. Mrs. SULLIVAN. Mr. Galifianakis. Mr. GALIFIANAKIS. Madam Chairman, it looks like the whole time. of the committee has expired and I would like to thank all the panel for their testimony. In particular, I would like to single out my constituent, Mr. Landt, for his instructive and constructive testimony. And I would like to add to his curriculum vitae that he has had very wide experience in homebuilding and the mortgage market, and we do appreciate his testimony and his presence today. He is a very distinguished Tar Heel and North Carolinian. Also backing him up in the last row is Mr. Ed Richards of North Carolina, about whom I can make similar comments. He is the gentleman smiling back there, and if he would rise, we would be delighted to recognize him. Mrs. SULLIVAN. We are glad to have you here. Mr. GALIFIANAKIS. Thank you very much, Madam Chairman. Mrs. HECKLER. I would like also to extend my appreciation to the panel. I have enjoyed your presentations. You have all given us a great deal to think about. Thank you, Madam Chairman. Mrs. SULLIVAN. Mr. Chappell. Mr. CHAPPELL. I have no questions. Mrs. SULLIVAN. It is a shame to have to hurry the hearing along so quickly because you have given us some imaginative testimony, and worthwhile recommendations. We appreciate all three of you coming here and sharing your knowledge with us today. Thank you very much. Mr. KROUT. Madam Chairman, may I assume that the complete statement will be included as part of the record? Mrs. SULLIVAN. Yes, the complete statements will go into the record. Then, as I said when your transcripts come to you for correction, if you want to expand on any of your answers, we would be perfectly happy to have you do so. Mr. KROUT. Thank you. Mrs. SULLIVAN. Thank you. Tomorrow's witnesses will be the Honorable Adlai Stevenson III, the Illinois State treasurer; Mr. Robert Wallace, vice chairman of the board, Exchange National Bank, and Mr. Nat Rogers, president of the American Bankers Association. The committee will stand in recess until 10 o'clock tomorrow. (Whereupon the committee recessed, to reconvene at 10 a.m., Tuesday, February 17, 1970.) EMERGENCY HOME FINANCING TUESDAY, FEBRUARY 17, 1970 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. The committee met, pursuant to recess, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Leonor K. Sullivan presiding. Present: Representatives Barrett, Sullivan, Stephens, St Germain, Gonzalez, Hanna, Gettys, Annunzio, Rees, Galifianakis, Griffin, Hanley, Chappell, Johnson, Mize, Brown, Williams, Wylie, Heckler, and Crane. Mrs. SULLIVAN. The Committee on Banking and Currency will come to order. This morning's session of the emergency housing hearings will focus on testimony to be given by the State treasurer of Illinois, the president of the American Bankers Association, and an officer of a Chicago bank. The name Adlai Stevenson III, is known almost as widely outside of the State of Illinois, where he is the treasurer, as it is within the State itself. Mr. Stevenson was specifically invited to testify because of the great work he is doing for the people of his State through the use of funds deposited in various State banks by his office. These deposits are earmarked for socially useful purposes and constitute a pilot program which has the potential of great achievement for the entire Nation if it would be duplicated elsewhere. Also with us this morning is Mr. Nat Rogers, president of the First City National Bank of Houston, Tex., and president of the American Bankers Association. I hope that Mr. Rogers will be able to give us some ideas on how the commercial banks of the Nation which have tremendous assets can play a much larger role in helping to meet the housing needs of the Nation. Our third witness this morning is Mr. Robert Wallace, vice chairman of the Exchange National Bank of Chicago. Mr. Wallace will be remembered by committee members for his testimony to the committee during the prime rate hearings last June. His testimony, reflecting a high degree of concern for the public interest, was extremely interesting, and I am sure that what he has to say today will be no less so. And, gentlemen, we will begin with Mr. Stevenson this morning, then go to Mr. Rogers and Mr. Wallace. And after that the hearing will be open to questions from the committee members. And I understand, Mr. Stevenson, that vou would like to leave, if possible as near to 11 as you can. Mr. STEVENSON. If possible, Madam Chairman. Mrs. SULLIVAN. I am sure that some of the other members will be in here shortly. I think the icy roads did much to stop them. But I would like to have you gentlemen summarize as much as possible, your testimony, and your entire statement will be placed in the record as though you gave it verbatim. Then we will start questioning Mr. Stevenson so that he may leave, and then go on to the other two gentlemen. Mr. Stevenson, you may proceed. STATEMENT OF ADLAI E. STEVENSON III, STATE TREASURER OF ILLINOIS; ACCOMPANIED BY CHARLES WOODFORD, ASSISTANT TREASURER Mr. STEVENSON. Madam Chairman, I am grateful to you for your kind words and to you and all of the distinguished members of this committee for the opportunity to appear here today. Let me introduce the gentleman on my left who is Mr. Charles Woodford, assistant treasurer of the State and to whom, I might add, is owed much of the credit for the development of our investment credit program in Illinois. The members of this committee are painfully aware of the serious housing problems throughout the Nation. The consequences of present monetary policies on opportunities for decent housing are nothing short of tragic. I want to commend this committee for undertaking the task of developing programs which will permit us to reach the agreed goal of an opportunity for all citizens to have decent housing. But housing needs are only one of many vital public needs which have suffered grievously as a result of tight money and high interest rates. It seems clear to me that there must be a new commitment on the part of existing financial institutions to provide the funds necessary for these needs or there must be new financial institutions to fill public needs for credit, such as the proposed national development bank. We have heard a great deal of rhetoric about black capitalism-but funds are not available for loans. The Small Business Administration is without funding for direct loans-and the banks are without funds for loans guaranteed by the Small Business Administration. Recently, the President jumped into the fight to reduce environmental pollution by announcing a plan to spend $10 billion on water treatment. But most of that money is supposed to come from local government borrowings, and the money just isn't there or it's too expensive. There has been an increasing Federal emphasis this past year on funding public programs through Federal guarantees of lending by private institutions. To mention only one more the new Housing Act, |