ing maturity of 15 years or longer by more than 212 percent. The market yield for such Government obligations at present is running in the area of 212 percent.

Senator DOUGLAS. Are you proposing, then, that Congress give up its statutory power to fix maximum interest rates?

Mr. WALTEMADE. Under the bill now, Congress has delegated that authority to the President.

Senator DOUGLAS. I mean you favor Congress giving up its statutory power, and turning this over to the President?

Mr. WALTEMADE. No; we do not. On our next paragraph we will clarify that position, Senator. I think that might answer your question, if you will.

We applaud the objectives sought in this part of title II, but respectfully recommend that the committee substitute the recommendations of the President's Advisory Committee on Housing, which called for the creation of a committee empowered and directed to review constantly the demand and supply of funds for home mortgages in all parts of the country and, from time to time, to confirm or revise by majority vote the maximum interest rates on FHA and VA mortgage loans not to exceed the formula set forth in this bill. This committee would consist of: (1) The Administrator of the Housing and Home Finance Agency-who shall be the chairman, (2) the Chairman of the Home Loan Bank Board, (3) the Commissioner of the Federal Housing Administration, (4) the Assistant Deputy Administrator for Loan Guaranty of the Veterans' Administration, (5) the Chairman of the Board of Governors of the Federal Reserve System, and (6) the Secretary of the Treasury.

We sincerely believe this to be a far more effective method for accomplishing the necessary flexibility. At the same time it would avoid the directing of pressure toward the President or any single Government official who might be delegated the task of reaching a decision.

The CHAIRMAN. Will you yield just a moment? I might say for the benefit of the record and also of the other Senators, that we have had testimony strongly urging that the Congress write a specific interest rate, and terms, into the bill, prohibiting any change, except by Congress.

Senator DOUGLAS. Except by Congress?

The CHAIRMAN. Except by Congress.

Then, we have had testimony such as this, recommending that we take it out of the hands of the President and put in under control of a board of five. Then, the legislation, as introduced, gives the President the right to change the interest rates and terms, as he sees fit, within certain maximum limitations.

Senator DOUGLAS. I understand the witness, while disagreeing with specifically granting power to the President, nevertheless, believes it should be taken from Congress and put into the hands of this boardan ex officio board.

Mr. WALTEMADE. That is correct, sir.

Senator DOUGLAS. And you seem to think that the interest rate although you do not directly say so, you mention that the market rate for governmental, long-term, 15 years or longer, is about 212 percentand then you propose

Mr. WALTEMADE. A 212-percent differential.

Senator DOUGLAS. Or 5-percent-interest rate.

Mr. WALTEMADE. As a maximum, sir, depending on the Government bond rate.

Senator DOUGLAS. I know, but our experience with these maximum provisions, when given to advisory boards, is that the maximum subsequently becomes the prevailing rate.

Mr. WALTEMADE. May I say we all know in our experience, Senator, that in the past year when the interest-rate question was so prevalent, both on the FHA and GI, before they were increased, it is true we had a fixed maximum rate, but we all know that, in effect, the rate was higher because we had the abuses of the discounts; and then, again, on the other hand, when there was the fixed maximum rate, without the flexibility and when money was plentiful for section 608's, they were paying 105 and 106, whereby this rate should have been lower at that time to prevent the abuses of getting the 105 and 106 premiums, and at the same time where only a few months later and still today is somewhat at a discount.

The CHAIRMAN. Let me ask you this: Why do you like the 5-man Board better when the 5-man Board is really the President? I mean the President appoints them; they are appointed subject to his wishes. If you gave it to the President, as this bill recommends, he possibly would depend upon these people anyway.

Just what advantage is there in having the 5-man Board, rather than the President, when the 5 men, for all practical purposes, are the President? In other words, the Chairman of the Board of Governors of the Federal Reserve System is appointed by the President. The Secretary of the Treasury is appointed by the President-all of them are. They are going to follow his wishes, are they not?

Mr. SUMMER. Yes, sir. But this is the practical application of it. We have in the money economy

The CHAIRMAN. I am not being critical.

Mr. SUMMER. I think I can explain the reasoning behind it.

In our money economy there is need on the part of the Government for financing; there is need by industry for commercial paper; and there is mortgage financing, among others, and municipal financing. The mortgage funds play a part in that entire economy. Five years ago they were the favorite child. They were taking or using an unreasonable portion of the money available at the time, which complicated Federal financing. A year ago the reverse was true. Now, at a time that the authorization, the legal maximums, established by Congress were higher than the FHA Commissioner permitted, as a maximum, at a time when money was scarce, the same was true in VA. So they did not go to the authorized legal banks. Yet the reason for it was that there was pressure from the Secretary of the Treasury that there was difficulty in financing Government bonds.

So the purpose of having these people sit around, regularly, is twofold: No. 1, so that mortgages maintain a proper place in the money economy; so that they neither suffer nor benefit. Secondly-and this is the important point, sir-no one agency will take the responsibility, with pressure from other agencies. They sit around the table-and the recommendation was they not be stated meetings. If, for instance, the bankers knew June 1 that this Board was meeting, all would stop for a few months to see what would happen to the interest rate. It is

important that all meetings be at the call of the Chair; and if there is a necessity for changing the interest rates, it be done overnight.

Now, the reason for the Board is that you would have a workable facility that can function smoothly and not disrupt the money market. And if the President had the authority, he would receive memoranda from different agencies, which might conflict with the other

The CHAIRMAN. You don't think there is any merit in the Congress designating the interest rate and the terms-period?

Mr. SUMMER. I think Congress can set a maximum; but I think the proposed formula does that, sir.

Senator LEHMAN. Does it? It seems to me that under the formula, the minimum rate, as a practical matter, in all probability would be 5 percent, but it might run much higher. Within the last few months we know there was a long-term bond issue sold at 34 percent. That, of course, changed the average yield of loans. Now, if you add to that 22 percent, you might get an interest rate as high as 534 percent. Mr. SUMMER. Senator, these are ceilings. And if the Secretary of the Treasury and if the Home Loan Bank Board and the Federal Reserve are sitting in on these decisions, I am sure you will recognize from a practical point of view they will not necessarily approve the maximum interest rate, because these are ceilings only. They are not mandatory increases in the interest. They certainly wouldn't do it if it disrupts the money economy or works a hardship on other programs.

That is why we recommend this as a practical vehicle to allow interest rates to find a reasonable level. But these are merely maximums, sir, and maximums have not always been the rule.

As evidenced 2 years ago by FHA and VA, they did not raise interest rates to the authorized legal banks. They did not go up there until much later on.

So I think by having these other groups represented, you keep a proper balance in your money economy, and I think it is one of the greatest and most important things to make the whole program of housing and slum removal operate practically. Otherwise, if it is legislated from crisis to crisis, it becomes an issue tied in oftentimes with a bill involving many other factors that have nothing to do with that.

The CHAIRMAN. You don't think there is any merit, then, in having stability in it, and having everybody know exactly what it will be for 12 months?

Mr. SUMMER. I don't think so.

The CHAIRMAN. We have had some testimony that there is.

Mr. SUMMER. The answer is this, I think-and I happen to be on both sides of the fence. I am a real-estate broker and I also handle mortgage loans. I find that the mortgage lenders are interested in net yield, considering liquidity as well. Therefore, if the net yield on bonds or on forms of commercial paper is better, they are going to reduce the mortgage lending.

Now, that is proper, within reasonable limits, and this whole thing is designed to keep mortgage lending in its reasonable place in the money economy. And I think there is no suggestion that has been made heretofore which more practically does it, because, after all, you have representatives from other groups of financing. The Secretary

of the Treasury and the Federal Reserve are interested in other forms of financing, particularly the financing of the United States Government.

The CHAIRMAN. Thank you.

Senator LEHMAN. It seems to me that unless you have a ceiling, based a good deal on legislation, you are very likely to have an unduly high rate. There will always be a comparison of the interest rates on these mortgages with the interest rates on mortgages generally, not overlooking the fact that these are of a special category and have special advantages and attractive features that the average, unguaranteed mortgage does not have.

I am afraid that by putting in just a provision to add 21⁄2 percent to the average current rate, that you may have a very, very high rate on this thing, unless you have a ceiling.

Mr. SUMMER. Senator, I would like to point out two things: No. 1, the proposal, of course, affects all FHA and VA financing, not only sections 220 and 221. And I want to point out that there have been conditions right along that have existed for the past 2 years, where conventional lending brought a high rate of interest, higher than FHA loans did, in spite of the fact that the FHA Commissioner still had the right to raise the interest another half a point, but didn't do it.

The history of it is that they have not gone to the maximum in all cases, and certainly with representatives from the Treasury and the Federal Reserve on there, they are less likely to go to maximum. And then Congress can always step in and say, "Here you have gone too high," and establish a ceiling. There is nothing to prevent Congress from doing that, if it is found to be abused.

The CHAIRMAN. You may proceed, Mr. Waltemade.

Mr. WALTEMADE. The second part of this title would give the President authority to adjust maximum mortgage maturities, mortgage limits and ratios of loan to value on FHA as well as VA loans, notwithstanding any statutory limits provided in the National Housing Act and the Servicemen's Readjustment Act. There is an attempt here to apply the pattern of flexibility to whatever it might attach-interest rates, down payments, maturities-as though flexibility for one must necessarily follow flexibility for the other.

However, there is an essential difference between flexibility for interest rates, on the one hand, and flexibility for downpayments on the other. It is a general principle that interest rates on Government insured loans should not predetermine the market but should follow it. For example, interest rates should be at the lowest possible level which would still result in the flow of sufficient money. However, downpayments and maturities, on the other hand, should predetermine the market. In the interest of long-range stability for the housing market, we strongly urge the committee to eliminate this standby authority as contained in paragraph (5) of section 201.

In opposing this part of title II of the bill, we want to emphasize again the importance of permitting increases in FHA mortgage limits and ratios of loan to value, provided for in this bill, to take effect upon enactment. In the interests of stabilizing the homebuilding and lending segments of our economy, it is essential that definite positive action be taken rather than more standby authority created. Standby authority may very likely bring about harmful uncertainty in the

market as builders and lenders sit back and wait for a more favorable atmosphere, and, similarly, would-be home purchasers would very likely follow the same approach.

Mr. Chairman, Mr. Summer would now like to be permitted to proceed to discuss title III of the bill.

The CHAIRMAN. All right, Mr. Summer.

Mr. SUMMER. Mr. Chairman, my name is Alexander Summer of Newark, N. J., and I have a little real estate and mortgage business in New Jersey.

I had the privilege of serving on the Advisory Committee to President Eisenhower in connection with this entire program. And I would like to file this statement for the record, and comment on it. But there are certain sections I must read because they are technical in nature. The CHAIRMAN. Without objection, it will be printed as written. (The prepared statement of Mr. Summer follows:)

STATEMENT OF ALEXANDER SUMMER, NEWARK, N. J., NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, CONCERNING TITLE III OF S. 2938 (FEDERAL NATIONAL MORTGAGE ASSOCIATION)

Mr. Chairman and members of the committee, my name is Alexander Summer of Newark, N. J. I am a past president of the National Association of Real Estate Boards and a member of the President's Advisory Committee on Housing Policies and Programs. I am president of the Alexander Summer Mortgage Co. and have been active in the fields of real estate, mortgage lending, and home building for over 30 years.

Mr. Chairman, the problem of providing better housing for all Americans and of maintaining the high level of housing construction we have experienced during the past several years has made home construction truly a mass-producing industry. As a major mass-producing industry, the prosperity of which sparkplugs the prosperity of more than half of the durable-goods industries in this country, the home-building industry can no longer afford to consider that shortrange remedies are solutions to its many problems. In the past, particularly with respect to the Government-owned secondary mortgage market facility in FNMA, there has been a predisposition to legislate from crisis to crisis, with the usual antidote for ailments in our mortgage system generally taking the form of an authorization to FNMA to use additional Treasury funds to purchase additional mortgages.

Any consideration for the long-range needs of the housing industry must involve recognition of fluctuations in the mortgage market and the maldistribution of mortgage money that have found many eligible home purchasers unable to avail themselves of the FHA and VA systems. All of you are familiar with the peaks and valleys in the mortgage market and the failure of existing mechanisms to relieve the situation. Our association, along with all the other segments of the industry, has devoted considerable study to this problem, with always the same result: The need for (1) a practical and quick-responding vehicle for adjustment of maximum interest rates and (2) a true secondary mortgage market facility to be operated without unnecessary restrictions and in such a manner that the initial Government capital will be progressively replaced by private capital.

The first recent legislation introduced on this subject was H. R. 6614, by Mr. Stringfellow, a member of the House Banking and Currency Committee. Our association endorsed the principles of that bill and still believes that the secondary market as set forth in that bill presents the framework for an ideal secondary market because of its planned decentralized operations and because it contemplates activity with respect to all types of real-estate mortgages.

However, we recognize that the creation of a secondary mortgage market facility which will truly function as such must be almost an evolutionary process. Confidence in the capital structure, obligations, appraisal standards, etc., of and the machinery for such a facility cannot be created overnight.

We are most anxious that a workable facility be created and begin functioning as soon as possible in order to avoid any further disruption to the mortgage economy. That is why we have adjusted our sights to the framework presented