(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 solutions-real 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

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 to 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 regard 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 immediately after the section heading the following new paragraph:

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

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

"There are hereby authorized to be appropriated such sums as may be necessary to pay the expenses of the Federal Reserve Board and the salaries of its members and employees. Subject to the availability of appropriations, the Board may maintain, enlarge, or remodel its office building in the District of Columbia 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

an adequate house in today's ruinous high-interest, tight-money economy. In order to afford an FHA mortgage of this size with a term of 30 years, a family must have a gross income of at least $13,000 and be able to make monthly payments of at least $226 for principal, taxes, insurance, maintenance, and, above all, interest. That minimum monthly payment of $226 reflects an astounding, almost unbelievable effective interest rate of 9 percent. Over the life of the mortgage it will require interest payments totaling about $38,000. In other words, that $22,000 house is going to cost the owner a grand total of nearly $58,000 before he owns it outright.

Even if the would-be moderate income homebuyer is credit worthy and is willing to pay the price, he may never sign a deed because mortgage money simply is not available to him at many lending institutions across the country. Only 45 percent of all FHA field offices report the availability of adequate loan funds. High interest rates on short-term securities are draining lending institutions of savings deposits which comprise the vast bulk of residential mortgage funds. Savings and loan associations, which provide over 40 percent of all residential mortgage loans, reported a net savings loss of nearly $1 billion last year. Similar conditions also prevailed at mutual savings banks, commercial banks, and insurance companies. By year's end the average mortgage originated by these institutions ranged from $28,800 for savings and loans up to $47,700 for life insurance companies. By this time practically every housing expert in the land was saying that only the poor, because they qualified for federally assisted housing, or the rich, because they qualified for anything. could afford to purchase a home. I wish even that were true. The fact is that the Department of Housing and Urban Development reported there were about 200,000 assisted housing unit starts last year, about one-third of the annual requirement to meet the national housing goals.

The price situation for apartment dwellers is even worse. With a vacancy rate down to a record post-war level of nearly one percent, new two-bedroom units in apartment houses in major urban areas are renting for $200 to $250 and three-bedroom units for $250 to over $300. Yet, these are not luxury apartments by any means. In many instances these high rents reflect the fact that insurance companies have written themselves in for a piece of the action-a piece of the income from such property-in addition to charging sky-high interest rates on loans They call it hedging against inflation.

I want to advise the committee we must go into this question of not only a person being required to pay the maximum rate of interest and then maintain compensating balances in a bank free of charge and then in addition give the bank a piece of the action which in effect means several times the rate of interest that can legally be required in a State. We must do something about that. That must be stopped Recently, contracts have been made in which banks and insuranc companies are just permitting the person who gets the loan to have the benefits of the first 10 years. At the end of 10 years, the insuranc company or the bank takes it over entirely. And I think our committe should give that early consideration.

In reality, such practices serve as booster shots that strengthen in flation.

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 million 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