long as they do not affect the safety, soundness or sanitary conditions of the home. FHA applicants, however, cannot waive any of the requirements of the minimum property standards-even with impounding of funds for the necessary improvements. FHA almost always requires that a home be reroofed. It is not a requirement of VA or the PMI's. Although the VA minimum property standards for existing homes are more general and provide more liberal interpretations than those of FHA, the rate of default for VA properties is generally no higher, comparatively speaking, than for FHA-insured properties. At the least, it would seem that the government could have uniform standards for VA and FHA programs.

Moreover, with more reliance placed on lenders, as the Task Force on the "Future of FHA" suggested, some unnecessary processing delays might be avoided. Once a package is finished by a Realtor®, PMI approval only takes 24 hours by phone, but it takes 10 to 15 days with FHA insurance. FHA could also save valuable time by having the lenders or borrowers certify that all required repairs have been made rather than only minimal ones, such as broken windows.

Another solution to the problem of processing delays is the use of local codes where possible rather than uniform property standards designed in Washington and applied across the Nation. This would not only speed processing time, but would eliminate any unnecessary encumbrance faced by applicants for mortgage insurance. Minimum property standards as interpreted are for the benefit of the homeowner and protection of the government-it is regrettable that they have contributed instead to the demise of FHA,

Another problem faced by many Realtors®, and a problem which significantly adds to processing delays, is the fact that in some areas, we cannot call the FHA office too often or during certain hours in the day. While we realize that the workload must be horrendous, we believe that steps should be taken to assure more responsiveness by the local offices.

Intermingling of insurance and assistance functions has also contributed to unnecessary processing delays. As we indicated earlier, despite the fact that we are pleased about some of the conclusions by the Task Force, we are disappointed that the group agreed to leave the operations by subsidized and unassisted programs in the same office. We believe that the FHA Commissioner and his Deputy should be free to concentrate on the purposes for which they were originally intended. FHA programs should again operate on FHA premiums rather than draining the Federal budget for subsidies. Let me emphasize that this Association recognizes and supports the concept of housing assistance to those who are economically disadvantaged. What we are saying is that a clear line should be made between insurance and assistance functions.

A word about the "inevitability" of "HUD's having to operate all housing subsidy programs. This Committee has raised on numerous occasions the question of whether the existing housing assistance programs are adequately reaching the proper recipients. Direct housing payments to low income families, such as the Housing and Urban Development, are one alternative to the traditional type of housing assistance. The Congress might well consider, under any versions of welfare reform legislation, authorizing a more comprehensive demonstration program than has previously existed to determine the workability of combining Federal housing assistance with welfare payments. It is possible that such a system for providing housing assistance with welfare payments could serve the housing needs of low and very low income families more efficiently than existing Federal Housing assistance programs.

In addition to processing delays, the National Association also believes that the fixed interest rate set by the Secretary of HUD also works against the use of FHA insurance. Since discount points are a necessary consequence of fixed rates, many people avoid FHA insurance. We believe that free-floating interest rates would be much more beneficial to the consumer than fixed rates with discount points.

In summary, the National Association of Realtors® believes that HUD has acted to relieve some problems, for example, through its move to reorganize. Further steps should be taken, however, so that processing delays are alleviated even further:

By separating insurance and assistance functions and exploring further the concept of direct housing payments to welfare recipients; By having standardized criteria for federally-insured housing;

By allowing the buyer to waive certain defects or at least putting a separate amount in escrow for the repairs;

By making greater use of lenders in approving loans and final appraisals of properties;

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By using local codes rather than property standards determined in Washington;

By allowing free-floating interest rates rather than the fixed interest rate set by the Secretary of HUD; and finally,

By assuring more prompt and responsive telephone communications between the field office personnel and lenders, borrowers and real estate agents. Thank you, Mr. Chairman, for allowing us to submit our comments.

Mr. HANRAHAN. Mr. Chairman, I have a booklet here entitled "Realtors Neighborhood Revitalization Program," that I would like to leave with you for the committee's review.

The CHAIRMAN. We are very happy to have it, it is an excellent booklet.

Mr. HANRAHAN. Also, with your permission, sir, I would like to submit a statement from our president, Mr. Harry Elmstrom, who will speak to the revitalization program.

The CHAIRMAN. Fine. Thank you.

[The statement of Mr. Elmstrom follows:]

REALTORS® NEIGHBORHOOD REVITALIZATION PROGRAM, HARRY G. ELSTROM, PRESI

DENT, NATIONAL ASSOCIATION OF REALTORS®, CHICAGO, ILL.

The Realtors® Neighborhood Revitalization program is fast becoming a reality in communities across the United States.

During the last seven decades, the National Association of Realtors® has been working hard at the grass roots level to help maintain the health and vitality of American communities. The recent programs include Build America Better, Realtors® Pride (Home Renewal), Make America Better and the Realtors® Energy Conservation Program.

This year, the National Association launched a new nationwide program to encourage individual members in its 1,735 local member boards, and its 50 state associations, to work at the local level with neighborhood organizations to stop further housing blight and the decay of the neighborhoods.

The program aims at the rehabilitation of housing in those neighborhoods so that more American families with low and moderate income can enjoy housing. The National Association formed a national advisory committee of eleven distinguished Realtors® and a general committee of chairmen from the 50 state associations and representatives from the nine affiliated Institutes, Societies and Councils.

The program was launched in August by means of an aircade with one-day meetings in Boston, Atlanta, Chicago, Denver, and San Francisco. The state association presidents, executive officers and the chairmen of the neighborhood revitalization advisory committee met with our leadership to learn the details of the program and to obtain a manual with how-to-do-it instructions.

Since that time, the state associations have been extremely busy organizing their internal communications to help their member boards establish local committees of Realtors® to work with neighborhood groups to help modernize their properties and revitalize their neighborhoods.

Participants in these neighborhood groups include those from government, politics, religion, education, labor, the neighborhood residents and others.

The Realtors® Neighborhood Revitalization Program is a solid, on-going activity of the National Association of Realtors®. It is our hope that it will help produce highly satisfying results in the years ahead. With more than 500,000 members, the National Association has the capability of providing continuous advice and enthusiasm to a great many local neighborhood revitalization projects and to help initiate many new ones.

The CHAIRMAN. Mr. Williamson.

STATEMENT OF JOHN C. WILLIAMSON, VICE PRESIDENT, MORTGAGE INSURANCE COMPANIES OF AMERICA

[The statement read by Mr. Williamson follows:]

Mr. Chairman and members of the subcommittee: I appear before you today not so much as a witness for or against any particular role for the Federal

Housing Administration but to furnish the subcommittee some information regarding the private mortgage insurance industry. I particularly welcome the opportunity to correct some erroneous impressions regarding the role of mortgage insurance companies (MICs).

First, I hope to make it clear and unmistakable that MICS serve generally the same market as the FHA and we do so in every state in the Union, the District of Columbia, Puerto Rico, the Virgin Islands, and Guam. There is no basis in fact for the oft-repeated assertion that private mortgage insurers skim the cream of the market and serve primarily the more affluent suburban areas. Our companies insure higher risk lower downpayment loans only at the request of the lender. It would be rare indeed if a lender submitted only low risk mortgages to a MIC. The opposite is more likely to be the case.

There are presently fifteen companies in operation with more than 140 insuring offices. No state is served by less than four companies and fifteen states are served by more then ten MICS.

For the first half of 1977 MICS insured 255,585 mortgages on single-family homes compared to 139,901 under the standard FHA section 203 program. Seventy-five percent of the mortgages insured during the first quarter 1977 and 70 percent during the second quarter were less than $40,000. The average mortgage for these two quarters was $34,400 with the average purchase price about $38,500. This is well below the average sales price of about $54,000 for new homes and $46,000 for existing homes for these two quarters, according to the Federal Home Loan Bank Board.

During the same period, 32 percent of the mortgages insured represented families or households whose gross monthly incomes were less than $1,500; and 67 percent, buyers whose monthly incomes were less than $2,000. For the same period the average downpayment was 10.76 percent, and the average loan term was 27.8 years.

More than 70 percent of the mortgages insured by MICs are on existing homes, and the remainder on new construction. About 70 percent of the mortgages are written by savings and loan associations, 17 percent by mortgage bankers, 8 percent by commercial banks, and the remaining 5 percent by savings banks and credit unions.

Ours is a highly competitive industry. All companies are publicly-held with aggregate assets of more than $900 million. MICs are chartered and regulated by the states. In addition the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation monitor both the financial status of MICS as well as their underwriting procedures. This is understandable because each of the these organizations through their secondary market activities have purchased billions of dollars in single family conventional loans which by law require mortgage insurance if over 80 percent of value. In addition the Federal Home Loan Bank Board by regulation requires its members to insure or set aside specific reserves if the mortgage originated by a savings and loan association is in excess of 90 percent of value.

The fifteen mortgage insurance companies in business today have more than $60 billion of insurance in force.

While there is considerable variation in premium plans, without exception the premiums are less than those charged by the Federal Housing Administration. Also, unlike the FHA, our companies insure the top 20 percent or 25 percent of a mortgage. This shared risk-concept imposes on the lender the burden of subjecting the mortgage to acceptable underwriting procedures. In addition the MIC is required by law or regulation to subject the lender to continued evaluation as to financial soundness, appraisal and servicing abilities, and its methodology for handling delinquent loans. MICs also subject the mortgage to its own underwriting standards.

Upon default by the mortgagor, the MIC has the option of paying 20 percent or 25 percent of the amount due on the mortgage plus certain costs, or paying the entire amount due on the mortgage and taking title to the property. MICS exercise the latter option in about 40 percent of the claims.

Because the lenders must exercise an underwriting function, the MIC generally is able to advise the lender whether the application for insurance is approved or disapproved within 24 hours of the receipt of the required documents.

Also, unlike the FHA, insurance is not required for the life of the mortgage. While the MIC must renew these annual policies, the lender may terminate the insurance at any time. To spare the homeowner the cost of premiums, FNMA and FHLMC require the termination of private mortgage insurance when the principal has been paid down to 80 percent of value.

During the second quarter of 1977, for the first time in history, private mortgage insurers insured more single family mortgages than the FHA (203)

and the VA combined, and this pattern continued into September. This demonstrates that private industry does have the capacity to do the job of helping to house households that are long on potential and desire but short of downpayment resources, and that it can do the job safely and efficiently. We believe the emergence of a strong and growing competitive private mortgage insurance industry does raise a legitimate question regarding the role of the FHA in our society. We believe that the FHA should continue as a viable effective mechanism for the insurance of residential mortgages. However, the emergence of this industry as a predominant insurer of home mortgages dictates a new rolea new direction for that agency. I might add, a role more consistent with that which influenced its creation by the Congress in 1934. I refer to the underwriting of risks which cannot be assumed by private sector. In this role the FHA could be the key instrument in any government strategy for the recovery of the inner city. This we submit is a proper role for a government agency. We submit further, that in an economy predisposed toward a private enterprise approach, it is not a proper role for the FHA to be revitalized only so that it can compete more effectively with the private mortgage insurance industry.

The FHA commenced operations in 1934 to insure risks which at that time could not be assumed by the private sector. During the first twenty-three years of its existence, the FHA developed actuarial experience which contributed materially to the 1957 birth in Wisconsin, and subsequent development and expansion of nongovernment mortgage insurance. The FHA can still perform this invaluable pioneering service by continuing to take on assignments of risk which would lead the private sector into new areas. That would be in keeping with the tradition of that great agency. In so doing the FHA could develop actuarial experience for mortgages involving marginal risk home-buyers in areas where private lenders, even with private mortgage insurance, may not be available in sufficient volume at this state in the evolution of housing finance to meet demand. This we submit represents a greater service to the nations housing goals than the current drive for the FHA to recapture the market which private industry is serving with less processing time and less cost to the home-buyer.

While I refer to a predominant role for the FHA in the inner city, I do not want to leave the impression that MICs are not today involved in such areas. Most if not all of the larger MICS are participating in the highly successful Philadelphia Plan as well as all the Neighborhood Housing Service Programs. This is another area were MICS' involvement will grow as their leader clients take on new risks. The FHA through its pioneering efforts can accelerate this process. This concludes my statement.

The CHAIRMAN. Thank you, Mr. Williamson, very much.

Mr. Hanrahan, I am happy to notice that your organization has undertaken a program to involve your local board of realtors in urban reinvestment and stabilization in your own cities.

I think if the job is going to be done, it will take local groups like yours, that are on the spot, that have the expertise, and that have the interest, and the ability to do the job.

Does that program include a specific financial commitment by your association? If so, can you tell us how much money you have committed to it?

Mr. HANRAHAN, Mr. Chairman, I can tell you that it does include a significant contribution. The budget item runs well into six figures. Unfortunately I must put a qualification in there, that our board of directors will meet in the early part of November, but I would expect this budgetary item to be approved.

The CHAIRMAN. Let me ask you this about it: For your urban action program, you say the fourth step in that program is to contact residents of neighborhoods and ask if they would be willing to join a group to work for revitalization.

I wonder if that overlooks the fact that some of those neighborhoods very often have strong and active groups already. Wouldn't your best bet, in those circumstances, be to work with such a group. And do you plan to do that?

Mr. HANRAHAN. Mr. Chairman, there is no intention of bypassing what is already there. We will take advantage of the existence of those groups.

The thrust of that recommendation was where it was needed. The cooperation at the local level, by the citizens involved, is vital.

The CHAIRMAN. Mr. Williamson, it has been argued strongly that private mortgage insurance can't replace the 100-percent FHA guarantees, that facilitate the secondary mortgage market-you probably heard the colloquy with the Secretary on that-since secondary investors don't want to accept any risk.

On the other hand, MIC-insured loans are certainly being accepted by FNMA and FHLMC today, and I gather your companies themselves act informally as a secondary network, bringing together lenders from different parts of the country who want to sell or buy loans. What is your response to the claim that private insurance won't sustain the secondary market?

Mr. WILLIAMSON. I think the conventional loan with private mortgage insurance is increasingly marketed in the secondary markets. The conventional mortgage-backed security is now emerging as a major financing vehicle.

Bank of America recently issued $150 million of obligations against a pool of conventional loans. We think that more savings and loan associations will be pooling their conventional loans.

Last month Standard & Poor asked our association to present to them criteria which they can apply in rating conventional mortgage-backed securities against pools of conventional loans.

Now our association helps market privately insured loans, conventionally insured loans. We do this as a service to the lender, because the marketability of conventional loans is very vital to our industry. We perform this service for S. & L.'s and for mortgage bankers, and this year the annual rate of our transactions is running about $5 billion.

We have a weekly reporting service, and I notice that in every weekly report there is always a marketing of FHA and VA loans by a lender, by a S. & L., or a mortgage banker. We provide that service even though it doesn't have private mortgage insurance.

So out of the $90 billion in mortgages which were marketed last year in the secondary market, FIA of course plays a substantial role, but the conventional mortgage with mortgage insurance is playing an increasing role in the marketing of mortgages.

The CHAIRMAN. Mr. Bazan, you had a very strong assertion that what we need is a greater degree of professionalism in the staff and higher degree of competence. Let me ask you to respond to Mr. Simons' assertion that 85 to 90 percent of FHA loans are processed within 3 days.

That contradicts Mr. Hanrahan, the realtors, who say in their testimony it takes 4 to 6 weeks, compared to 7 days to 2 weeks for private. insurance, and also Mr. Gravlees of the homebuilders, who estimated 18 days for FHA compared to 3 for VA.

How do you explain those differences? Do you think processing can be achieved in 3 days?

Mr. BAZAN. First of all, I am inclined to place a good deal of reliance on the experience of the fellow who is out there having the service delivered or delayed, as the case may be.