PHILADELPHIA-LOW AND LOW-MODERATE INCOME HOUSING PRODUCED UNDER ALL PROGRAMS

1 Approvals.

2 Total counts 18 units produced under 221h by PHDC and taken over by PHA only once.

(Whereupon, at 11:25 a.m., the committee stood in recess until

10 a.m., Friday, February 20, 1970.)

EMERGENCY HOME FINANCING

FRIDAY, FEBRUARY 20, 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 Sullivan, Stephens, Hanna, Gettys, Rees, Griffin, Widnall, Halpern, and Mize.

Mrs. SULLIVAN. The Committee on Banking and Currency will come to order.

This morning's emergency housing hearings of the Banking and Currency Committee will deal with the testimony of four men who are directly involved in the effort to meet the national housing goals. With us this morning are the Honorable Preston Martin, Chairman of the Federal Home Loan Bank Board; Allan O. Hunter, President of the Federal National Mortgage Association; Pat Greathouse, vice president of the United Auto Workers Union, and Philip Brownstein, former Assistant Secretary for Mortgage Credit in the Housing and Urban Development Department, now a representative of the Council of Housing Producers, an organization of the largest housing producers in the Nation.

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We welcome you to the hearing, gentlemen. And I know that testimony will be of great value to the committee as it seeks additional sources of mortgage credit at reasonable rates in order to eliminate the Nation's housing crisis.

I understand that Mr. Greathouse has a problem of having to get away at a certain time. I was going to start with Mr. Martin, but I wish that all of the four witnesses would come up to the witness table now.

I hope that you four gentlemen will summarize your remarks, because we have a great many questions to put to you. And we want to get all of the information we can out of questioning. Your remarks will be put into the record in full. But if each of you would limit your testimony by summarizing your remarks I think it would be very helpful.

Because Mr. Greathouse must catch a plane, if you would, Mr. Martin, I would like to refer to him. We will possibly give him a question or two, and then excuse him and devote our time to you other three gentlemen.

So if you will, Mr. Greathouse-will you summarize your testimony.

(517)

STATEMENT OF PAT GREATHOUSE, VICE PRESIDENT, INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE & AGRICUL TURAL IMPLEMENT WORKERS OF AMERICA-UAW

Mr. GREATHOUSE. Thank you, Madam Chairman.

In the statement that we have submitted we have, I think outlined some of the background on the need for legislation and work in this field, which I am not going to spend time commenting on, because I think there is certainly great awareness on the part of this committee and people who have appeared before the commitee of the need for us to do something on the grave problems which we face in the housing

area.

So I would then prefer to take the time that I have and talk to you about a specific proposal which we in the UAW would like to put forth. We recognize that this is probably not the only, or maybe not the best proposal which has been before the committee or will be before the committee.

We are also well aware of the bills which are pending by the permanent chairmen of the committee and by the chairman of the committee today that are before you. And we want to say that we commend them on introducing this legislation. We think it deserves full and friendly consideration, along with the proposals which we make and which other people may make and have made to the committee.

I would like, however, to just read one portion of our submission. and that is the essence of the proposal that we are making. Mrs. SULLIVAN. What page is that?

Mr. GREATHOUSE. Page 9.

We believe that legislation should be enacted which would empower and direct the President, whenever interest rates on home mortgages rose above a specified level and/or there was evidence of a shortage of home mortgage credit, to direct the Federal Reserve Board to require all banks within its jurisdiction to hold housing mortgages equal in value to a specified proportion of their total base period assets.

Now, the reason that we are talking about total funds, in addition to just pension funds, which the chairman of the committee submitted in a bill, we have advocated ever since we have had pension funds that a portion at least of the pension funds be invested in these kind of investments. We have made this request at the bargaining table in meeting with the corporations that we bargain with. We will be bargaining in 1970, and we will again make this proposal there. We think the problem is much greater than just the matter of need for investment of pension funds.

The proportion should be high enough to assure a sufficient volume of credit at reasonable interest rates to support the housing goals set by Congress.

The target maximum interest rate should be specified by Congress, and the President should be directed to increase the proportion of base period assets required to be held in home mortgages if, and when. actual rates exceed that target.

We believe that consideration should be given also to imposing the same requirement on other financial institutions, such as life insurance companies, and on private pension funds as well. In addition, we

elieve the requirement should be made applicable to other high priority needs for credit.

For example, the President, through the Federal Reserve Board, ould be empowered to require the lending institutions to hold an dditional proportion of their assets (over and above the proportion pplicable to mortgages) in State and local government bonds either uch bonds in general or bonds issued for specified purposes that rank high on the order of national priorities.

Alternatively, a single proportion of assets could be specified suficient to meet the total credit requirements of all types of borrowers ncluded in the presidentially determined priority list.

Mrs. SULLIVAN. Mr. Greathouse, before you go any further on that, it the beginning of your statement you mention a specific interest rate. What would the interest rate level have to be before the President -hould call on the Federal Reserve?

Mr. GREATHOUSE. We say this determination should be made by Congress. We propose that Congress should determine what the fair interest rate is, and at what point this should kick in.

Mrs. SULLIVAN. In your thinking on this view have you come to any decision as to what that rate should be, 5 percent, 6 percent?

Mr. GREATHOUSE. Normally at this point we think generally in terms of 5 or 6 percent. We have not come up with a specific figure. We are just making this proposal as something the Congress should act upon and take into consideration to establish what they consider a fair interest rate.

Mrs. SULLIVAN. Thank you.

Mr. GREATHOUSE. The alternative approach would provide more latitude. And we think that the effect of this proposal is obvious. In order to comply with it, the lending institutions would find themselves compelled to compete with each other for the types of loans on the priority list. With the percentage requirement fixed at the proper level, that competition would exert heavy downward pressure on interest rates without diminishing the flow of funds to priority uses. And we think this becomes a key item, because if you set the amount that should be set aside based upon the needs, there will be competition for the loans in that field.

Thus, the supply of credit for such uses would be adequate and the interest charges would be reasonable. There would be, however, as we say, a reduction of credit available for nonpriority uses.

We do not think, however, that this is necessarily bad, because we think that this is where much of the inflation stems from. And it is much better to have a scarcity of money for the nonpriority uses than for the priority uses which we have at the present time. So we think we should change our priorities.

On page 11 we discuss one additional reason that might come up. And that is the disintermediation problem. There is cause for concern, however, on the problem of disintermediation, the withdrawal of deposits from the lending institutions because higher interest rates are obtainable elsewhere. Money is a slippery thing and tends to flow always to those uses where returns are highest regardless of whether or not such uses are in accord with national needs and purposes. To the extent that speculators, among others, might be willing to pay higher interest rates than the banks could afford (as a result of the

low interest rates that would be payable on mortgages, et cetera under our proposal), lendable funds might be drained out of the banks.

We have tried to anticipate that problem in our proposal, as briefly summarized above, by relating the percentage of assets to be held in the form of high-priority loans to total assets in a specified base period. This would yield for each bank an absolute dollar amount that would have to be held in such loans. Thus, only if disintermediation were so severe as to impinge on that amount would there be any danger of a lack of funds for housing and other priority uses. The possibility that disintermediation might reach this extent seems rather remote.

More likely is the possibility that the lending institutions' "free assets"-that part of total assets which is not covered by the presi dential directive-might be diverted away from uses which, though of lesser priority than the protected uses specified by the President are. nevertheless, of considerably greater national importance than the purposes for which they are actually being used.

In that case, the President would be authorized, under our proposal, to expand the list of priority uses included in his earlier directive to increase the proportion of base period assets reserved for such uses.

An additional safeguard that we propose, if it became necessary is. the President would be allowed to impose a special temporary and flexible surtax on interest income from nonbank and nongovernment sources, and from other groups that are covered under this proposal. This surtax would be sufficient to offset the gains from higher rates paid by such sources.

We rely on the banks as our main instrument for the allocation of credit. If the flow of credit is to be directed toward priority uses it must be channeled through the banking system. It would be entirely proper, therefore, to discourage lending outside this system whenever it became advisable in the national interest to do so.

Now, the special surtax should be temporary, and it should be flexible. We recognize that there is a hesitancy on the part of Congress to give this kind of authority to the President. We think that it needs to be given so it can be acted upon quickly, but we propose that any time that it is to be enacted or to be taken off or to be changed there should be notice to the Congress, and Congress should have an opportunity to act upon this, and the charges will only go into effect if the Congress does not act contrary to the action of the President.

We say in the last line of page 13: The Presidential intention would be carried into effect only if Congress has not voted its disapproval within the specified period. So that Congress would still have control.

So we know that there is this housing crisis now upon us. We hope that the committee will take action to have the Congress do something about it.

And I would like to just emphasize two additional points.

We are not suggesting that Congress abdicate its responsibilities with respect to the proposed surtax. We believe it would be desirable for the Congress to retain control through the right to veto Presidential decisions concerning the surtax.

The surtax is not an essential part of our basic proposal. We believe that our basic proposal would work without the surtax.